Why won't terminal let me ssh in to my lan server when Windows/Putty works fine?
Mac OSX 10.6 does not respect DNS responses with a TTL (time to live) of 0 (which is what DD-WRT based routers are set to by default).  You will need to go into the DD-WRT router and into the Administation -> Services tab.  You will see a box called Additional DNS options.  Add the following value to this box :

local-ttl=5


Save and reboot your router and your Mac, and you should be able to see server.local in terminal (without having it in your hosts file).