I got a response from bugs.kde. Although I have used kmail since the mid-90s
and have never had to fiddle with it, it turns out that in kde4, one has to
explicitly unset the 'keep replies in this folder' option for each inbox
folder one had (I have one for each identity/email address). It now works
great. I have tested fro both replies and forwarding.
Unfortunately, quotes still don't work.
Other than these minor glitches, this kde4 has already shown itself to be
*the best ever*.