I found when this "feature" was implemented:
gitff2d9b71547d95566416fa968872910ca9c4adb1

Part of commit message:
```
in command-line options, and in two phases at that: first, we expand
'install_base' and 'install_platbase', and then the other 'install_*'
options.  This lets us do tricky stuff like
    install --prefix='/tmp$sys_prefix'
...oooh, neat.
```

So this was intentional change in distutils.

The only suggestion I have to fix this issue without break something in the wild is to suppress exception in Lib/distutils/util.py:189 and leave variable without available substitutions as it is. To be on safe side this can be even optional and disabled by default.

I am newcomer so some guidance will be helpful.