Você está usando o OpenSSH 5.3; %h
foi introduzido apenas no OpenSSH 5.6 :
Changes since OpenSSH 5.5 ========================= * Expand %h to the hostname in ssh_config Hostname options. While this sounds useless, it is actually handy for working with unqualified hostnames: Host *.* Hostname %h Host * Hostname %h.example.org