After some banging my head against the wall, I finally figured out the problem. For some reason, this only works if you use the VST version of Kontakt. There is a setting in the Kontakt->Options on the Engine page that lets you choose to send MIDI to the outside world. Make sure you have "script generated notes" turned on. But, even with it on, it doesn't seem to work with the Audio Unit version of the plug-in. Let me know if that solves your problem.