Okay. "The attack is on Alice, who thinks she's connecting to Eve, but is actually connecting to Bob. Assuming Alice doesn't check the host fingerprint (which nobody does), the attack succeeds."

You're fundamentally misunderstanding the argument about which key is being copied. It's Alice's public key that's copied. The fake server generates its own public and private keys and nobody notices that it doesn't match the real server. The user won't be "prompted to cancel" when this is their first time connecting.

authorized_hosts, as typically used, prevents an imposter from showing up later. It does absolutely nothing to prevent an imposter that's there from the start.