first, to discover your keycodes with xev, it must be run from console, since it sends its output there.
then set your .Xmodmap to define the key symbols like that:
keycode 160 = XF86AudioMute
or for a quick start, run xmodmap -e 'keycode 160 = XF86AudioMute'
after that you should disable kmilo in kcontrol, somwhere in the services section, because it catches all your keyboard events before khotkeys does. so, that's basically it, configuring khotkeys shouldn't be a problem anymore
hope this helps