And more importantly, should I have it enabled or disabled? I'm running a dual NIC system that and using ICS to my cable modem.

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My Slug.
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Abit BE6 II rev 1.2
Celeron 566@850 mhz
13g ide Hdd
SMC NIC 100mb
REALSHIT 8029 NIC 10mb
Riva tnt2u --> ancient
SBlive
256mb ram
HP 9300 CDRW
Windows ME/Windows 2000
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LMHOSTS is a file that consists of ip addresses and netbios names.

When you connected to a computer or website, if LMHOSTS is enabled, it will check this file to see if there is an entry for that computer and use the IP address found in this file. If there is no LMHOSTS file it will usually use DNS or WINS.

It really doesn't make any difference if it is enabled or not, because if you don't have the file it will use DNS/WINS.