It stops dead. You’d not have missed it. My guess is that you cleverly solved the problem with /etc/hosts which satisfied the script, but not let’s encrypt when it went to get a certificate. discourse-setup is a shell script, and it’s designed for the most novice of users, so it’s tests are rather naive.
Maybe see the standard install topic?
EDIT: Well, there’s not much there.
What troubleshooting advice do you want to add? I think there are some clues there. Guessing that someone will create an /etc/hosts entry and bypass the DNS check is something that I have never heard of anyone doing. 