The Create Address Locator tool requires the Reference Data to be in the format of a shapefile, coverage or Feature Class. In addition, the tool will also accept the StreetMap Premium layer from ArcGIS Online. Unfortunately, Hosted Feature Layers are not recognized as a supported Reference Data input.
Current work around: Export the data from ArcGIS Online to a Shapefile or File Geodatabase. This will store a copy of the data to your local computer and will allow you to input the address layer into the Create Address Locator tool. Additional information on exporting Hosted Feature Layers can be found here.
As for enhancements, I would like to see Hosted Feature Layers as input for the Create Address Locator tool. Data is moving online and we are slowing decreasing our own server farms. This tool would help organizations with not having to rely on local copies of their data. (Helping with the migration to ArcGIS Online - Mapping Without Limits)