I'm plotting ahead in my game and while I like the idea of the Night Hag's Ethereal Haunting, it seems like the sprt of thjng for which there really is no defense and makes perfect sense for the Hag to just get away with a Character Kill Scott free.  How do I include this where there is both a reasonable defense and a way to track down the Night Hag?

The protection's include Protection from Evil and Good (10 minutes, concentration), and Magic Circle (1 hour).  But the Hag is using her Haunting to ruin a short rest of 1 hour, or a Long Rest of 8 Hours (4 for elves), so neither of those spells actually make any sense for these circumstances.  If I'm an evil Night Hag and I have the hearth stone that is required for this attack to even be mentioned, I just stay on the Ethereal Plane at a distance of more than 60 feet before moving in while the party sleeps.  There's no saving throw, and this is a CR 5 Monster that can attack from the Ethereal Plane.  What is the party supposed to do?  I'm asking as the DM here.

Generally people don't sleep during a short rest, so the Nightmare Haunting only applies to long rests. It won't affect Elves because they don't sleep.

The party could not sleep near the Night Hag? If the hag keeps following, will it continue following into the nearest town?

The See Invisibility spell will let somebody see into the Ethereal plane, and force spells will work against targets on the ethereal plane. (see https://www.dndbeyond.com/sources/dmg/creating-a-multiverse#BorderEthereal)

Somebody on guard can be watching for sleeping people which look like they are having bad dreams (dreadful visions) - and then act accordingly to deal with a hag in the immediate vicinity.

The Soul Bag can only hold the souls of evil humanoids - so as long as nobody in the party is evil, the hag is less likely to want to steal their soul.

Why should the Night Hag just not follow them from the Ethereal Plane?  There's nothing to suggest that the Night Hag can't just stay there indefinitely, and you can see creatures and such on the Material from the Ethereal without issue, just not the other way around (without magic) so that I understand.  *I thought you could see 60 feet into the Material but apparently the 60 is for distance ON the Ethereal, while 30 is what you have into the Material. *

I generally assume that if it's stalking someone for murderous reasons it will attempt to remain unseen up to the point of interaction and even with the benefits of being Ethereal it would keep it's distance to close visibility but beyond 60 feet.  I agree that an on guard party member should be able to do something, at the very least do a, "Hey what's going on here, wake up!"  So.  It sounds like the best response available to a party of let's say 4th to 7th level, would be to have everyone know that they're being stalked by a Hag, and when the obvious Nightmares begin, wake up the spellcaster who will have both See Invisibility & Magic Missile (and hopefully there are other spells that work as well?) prepared?  Honestly that helps make the issue a lot more doable rather than just looking at this one Hag as a slow life leech assassin with no recourse.  I'm sure Player's will routinely come up with solutions the DM never imagines, but just as often they run into problems the DM never intended (obvious ones being leaps of logic the DM made over canyons that Players looked at and said, "Nope.")

The Hag would have to stay within 30 ft of the party in order to keep track of where it is, since that is the limitation of visibility from the border ethereal into the material plane.

Technically, a Tiny Hut would prevent the Hag from touching somebody if it is cast whilst the Hag is outside (since the Tiny Hut is made of force, and thus extends to the ethereal plane).

True, true.  So the Hag would probably need to attempt to follow them at a distance and stealthily while in the Material, wait till they camped, and then mosey on over in Ethereal Form.  Assuming the party just doesn't bust out a Tiny Hut from the get go (and it's not impossible the player's could start things as early as level 4) they might just have to deal with it as a I said earlier.  If they don't take the steps suggested for night time protection, it's not at all impossible it could be one PC dead.  That or perhaps they'd have to consult with some local herbalist, priest, soothsayer or such that might have a pro tip.

I played a wizard in a campaign against a Night Hag. See Invisibility combined with Tiny Hut was my solution. But it was hard! Tiny Hut by itself wasn’t enough, it took both of them since she was inside of the Hut when I cast it once before I learned See Invisibility!

Thanks Tim.  The difficult part of this is that I have to recognize that the Night Hag is best described as a mini-quest in and of herself, the equivalent of tracking and trapping a serial killer.  It's kind of cool but I have to play it very seriously to avoid putting my PC's in an impossible position.

Quote from Farling >>

The See Invisibility spell will let somebody see into the Ethereal plane, and force spells will work against targets on the ethereal plane.

Force effects can hamper the movement of ethereal creatures, but that paragraph says nothing about being able to damage them, and given that it uses identical wording for living creatures, if you can attack ethereal creatures with force effects, you can also punch them.

My decision is that once the party discovers that their teammate's unusual tiredness and weakness is caused by a night hag, they can take actions to protect the character. The night hag can only benefit from a soul won easily, so it will give up if the quarry puts up a fight. However, it might move on to attack someone else the party cares about.

In any case, the night hag shouldn't be a random thing. It isn't a monster to be thrown around lightly. It should be a recurring nightmare carefully planned and related to the plot. Also bear in mind that the CR of 5 is misleading - since it has access to Nightmare Haunting, Etherealness, and the ability to travel between planes of existence, its combat stats don't recognize it for what it is. It should be presented to tier 3 characters if you want them to have a decent chance of truly defeating it. Usually, the only thing that can scare away a night hag forever is the group entering the ethereal plane to attack it there, or somehow destroying its heartstone and trapping it on the material plane.