I've already troubleshot wordpress (plugins, theme, functions.php) and it didn't resolve the issue. It's a pretty new install anyways so that was pretty easy.
So is there some setting I can change in Ampps to get this working?
I've decided to downgrade a bit as I do not see many people having the same issue so I tested 3.5 version and it installed correctly but had the same issue - nothing is added to /etc/hosts. I chowned the file to ampps:ampps as far as the Ampps is having that ownership but again had no better luck.