Is the KP3 new or used? If you got it used, there's lots of DJs who mistreat their gear by pushing everything beyond clipping, sometimes frying input and output stages. They want it "louder" but don't understand how to get it louder - because they don't understand the whole signal path and gain stages. So they just turn all the knobs and faders up, even though the inputs are overloaded beyond red. There's only so much voltage/current that the poor little circuits can handle before they get smoked. I suppose it could be a manufacturing defect if it's new

, but defective DJs are a more common occurance.
The process you used to increase the level into green, so that it just occasionally hits orange, and never red, shows that you're doing the right thing to get the signal into the KP3. But something between the preamp and the KP3 A-D converter might be fried/defective. The Green/Orange LED proves that the KP3 is getting a good level, so something down the line appears to be a problem.
The high level from the internal drum patterns and synth proves that the DSP/Effects engine appears to be working just fine.
Thanks for sticking through this process. Hopefully it's been helpful to go through the steps of walking through the signal path on your KP3 to more specifically isolate the nature of the problem. I know that I learn a lot more about the gear when experiencing problems, since I'm forced to look at all the pieces of the puzzle in more detail.