I'm marking this invalid in both ubuntu and cloud-init upstream.
If cloud-config  like the following does not do what you want, please re-open:
#cloud-config
manage_etc_hosts: True
hostname: my-hostname-here

** Changed in: cloud-init
       Status: Incomplete => Invalid

** Changed in: cloud-init (Ubuntu)
       Status: Confirmed => Invalid

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https://bugs.launchpad.net/bugs/768296

Title:
  Setting hostname via config is not reflected in /etc/hosts

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