James,
I do not think that manage_etc_hosts has any implication on cloud-init after an 
'update'.
Unless your hostname were to change during that update.

I think the best thing for you to do is
a.) stop doing that
b.) figure out why you needed to do it and file a bug.

Basically we do not expect that you should need to run 'cloud-init init'
on a running system.  So... any reason for doing so is probably a bug,
but we need more information.

Thanks!

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https://bugs.launchpad.net/bugs/1732917

Title:
  17.1 update breaks EC2 nodes

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