Hi Gene,
when you configure Identity - go to the encryption tab and select proper key
for signing and encrypting messages.
Select OpenGPG/MIME as preffered encryption type.
When you get the key of your peer - open Kgpg and configure to point to a
sever or import the key of the peer and mark it as trusted. This also apply
to your own key.
Right now I am not sure if one should sign the key, so that it would be
treated as secure by kmail. Perhaps one would correct me here.
In any case the key of your peer should be marked as green in kgpg.
I hope this helps