When the salt is "x", it'll return "*" and still not match, won't it? The code is correct as long as the second argument is the hash that's being checked. And like you say, the sha512 path isn't relevant since you only get there if the salt started with "$".
> Turns out that sshd detects that the password hash is too short and does not forward the salt!
I think you're misunderstanding the intent of that check. It was added by the 2016 change linked in the writeup[1] and causes OpenSSH's xcrypt() to select and use a salt from a different line of /etc/shadow to prevent timing attacks. It is correct for a crypt() implementation that returns NULL on error.
[1] https://lists.mindrot.org/pipermail/openssh-commits/2016-Jul...