Every hidden service I've been to ends .onion, but I haven't any technical explanation as to why that is.
I've also never found any information regarding whether or not it is possible to host a hidden service with any TLD other than .onion.
I've tried changing my hostname file to mysite6dfas3ds65.onion to mysite6dfas3ds65.potato, however it reverts to .onion after restarting tor.
dot-onion is a top-level domain that indicates, by the rules of DNS names structure, that "everything inside it" belongs to the same zone. This zone is hooked up by Tor resolver and the resolution goes on there - but not DNS one, it's an internal process for Tor to look up for hidden service descriptor and to make further step to connect you with it. So, yes, it has to be ending with ".onion" in order to be properly handled
