But seems like only the http connection is working, i get a warning in Chrome when visiting https://cloudflarechallenge.com. Isn't that the only situation where the key would be checked. That's the part that doesn't make sense.
Either go to https://www.cloudflarechallenge.com or remove the www subdomain from your hosts entry.
I see Indutny's blog for 'https://www.cloudflarechallenge.com'[/etc/hosts mapped to 165.225.128.15] in both FF and Chrome.
openssl s_client -connect 165.225.128.15:443 -showcerts \
-servername www.cloudflarechallenge.com
(Though to fully check, you need to compare certificates with the one off the real site, and ensure that his blog appears upon an HTTP request - to exclude proxying.)