I've looked around but couldn't tell if being hostile with a nation make you target-able by members of that nation.

it wont, but if you become hostile with your own nation, you will be kicked out and become a pirate.

Hostility affects some things right now and a whole lot more in the future.

The current affects are:
-Hostility with own nation will result in you becoming a pirate.
-Hostility with a nation make you appear as a target to players trying to become citizens of target nation.

(Ie, ig you are within the top 5 hostility list of England and Phil tries to become English, the Governor will ask him to attack you. This will award Phil a ton of ranks and will help him accomplish his mission, usually with greater rewards than attacking a npc fleet.

Thanks, guys.
I remember now from the last time I played. There's nothing like a refresher course to make you question your senility.