I've now fixed the typo so it should behave better hopefully.
I couldn't reproduce the bug though, for me the value was correctly transfered:
diff --git a/engine.cfg b/engine.cfg
index b04af42..001c5e3 100644
--- a/engine.cfg
+++ b/engine.cfg
@@ -5,4 +5,4 @@ main_scene="res://Node2D.scn"
[physics_2d]
-default_density=13.4
+default_linear_damp=13.4