Hi Steve. I know nothing of "VSTHost" I make an assumption it's a "DAW" I use Cubase for all my recording and yes you CAN play "live" through the DAW and hear the applied VST effect if its placed as an insert on the Audio channel you wish to play/record on. You must have the "monitor" button lit up as you would to hear yourself playing along with your BT. If you wish to "send" the signal to the effect to get a "dry/Wet" mix then place the effect in the insert rack of the created FX channel and the select this bus from the drop down rack of the audio channel and adjust the amount sent. this is a better option than inserts as the whole signal is processed through the effect with eho/reverb etc rather than a mix of "dry" wet signal. If you place the effect in the insert rack on the INPUT channel then ALL audio recorded will be processed with no possibilty of changing it so thats not a good idea. The exceptions to this would be when using plugins like compressors/limiters or other dynamics processsors when they need to process the whole signal. There are some other estoteric ways of using "dynamics" plugs as sends effects but that's another story
Latency will not be an issue really as delay compensation is usually handled by the DAW it's the quality of your soundcard, A/D converters,buffer settings and sample rates for the card that will determine the m/s latency times.
PS as ALL audio is recorded in a DAW (Digital Audio Workstation) a posh name for recording software. as I said unless you place effects in the input. So to sum up. monitor button "lit" so you can "play the effect" monitor button "off" so you can hear your recorded audio with your chosen effect, or learn how to "send" to an FX channel to better control during a mixdown.
Hope this helps.
Mike.