Why is a connection via an SSH tunnel presenting as 127.0.0.1 and not localhost?
All connections that were being made on the server to "localhost" were indeed using the Unix Domain Socket and authenticating with the test@localhost user.

I confirmed this with some tests:

mysql -utest -hlocalhost --protocol=SOCKET -P3306 -p  # worked (-P also redundant)
mysql -utest -hlocalhost --protocol=TCP -P3306 -p     # failed
ERROR 1045 (28000): Access denied for user 'test'@'localhost' (using password: YES)


The connection via the SSH tunnel was using TCP and as skip-name-resolve was ON was trying to login as test@127.0.0.1 rather than test@localhost.

Since my applications are running on the same server as the database and configured to connect to localhost/UDS, I see no benefit of turning skip-name-resolve ON as this just causes an additional problem when attempting to connect via the SSH tunnel to "localhost".