If you have 120V going to it all the time then it should work. The KPL when in toggle mode, will respond to other X10 signals (turn on/off key illumination) from other devices when they share the same programmed address. It could also be noise, how is everything else working?
Do you have another controller that you can hook to the Black and White wires where the KPL is? Something like a maxi controller (use alligator clip leads). This will at least tell you that you can transmit on these lines.
Let me know how it turns out. If it appears it's defective let me know and another is on it's way.
Bill
www.homeautomationnet.com