Part of the "issue" here is that in this case, *N does not expand to linefeed (but ***N does).
Edit: But after a little experimenting, this looks more like confusion over what %X is and how it works - lformat "%X1*n" works as expexted, with "%X*n" %X apparently just "swallows" the * and the n, while "%X *n" (space betweem X and *) does not. What's correct behaviour here is probably debatable, but I agree that it would be best to exit with error about bad template.
So, will C:Info and C:Date get LFORMAT too? And maybe C:Assign?