Another option here is to have your iPhone connect via a proxy. Here’s an example of how to do it with Fiddler (it’s very easy):
http://conceptdev.blogspot.com/2009/01/monitoring-iphone-web-traffic-with.html
In that case any dns lookups your iPhone does will use the hosts file of the machine Fiddler is running on. Note, though, that you must use a name that will be resolved via DNS. example.local, for instance, will not work. example.xyz or example.dev will.