Adding "local" to the DNS Search Domains has no effect
Hostname resolution in Mac OS X (since ~10.3) has roughly spoken - i exclude various cache mechanisms - the following operating sequence:


'Files' (e.g. /etc/hosts) ->
mDNS ->  
DNS (search domains) ->  
DNS


Valid names for the different name resolution methods:  

for 1: almost arbitrary names
for 2: name.local
for 3: name (+ search.domain in your network prefs) A Start Of Authority (SOA) record for the top level domain is obligatory.
for 4: fqdn

In your first scenario (myserver.local) you only use 'Files' and mDNS. 'Files' fails because there is no entry myserver.local in your hosts file. mDNS succeeds resolving it because it's a valid and resolvable mDNS name.

In your second scenario (myserver &amp; search.domain local) you use 1, 2, 3 (and 4). 'Files' fails because you have no entry myserver, mDNS fails because it's no valid mDNS name. DNS (search domains) fails because you don't have a DNS-server with a SOA record for .local in your network (as well as DNS).

So just enter sudo nano /etc/hosts in Terminal and add the line:

 a.x.y.z      myserver


(a.x.y.z= IP-number of your server) and it should work. If you are really lazy even an 'a' as name might be sufficient. But don't use single numbers (like 1 or 123) because then ssh might try to connect to 0.0.0.1 or 0.0.0.123. At least ping connects to 0.0.0.1 or 0.0.0.123.