Had some fun with trial and error and reading examples and more trial and error and this:
Finally I came up with a keyboard layout for kterm that works. This is the first draft version. Only Normal keys and shifted and capslock work so far, the extra symbols are not implemented yet - the buttons exist, but does not change anything yet.
Please note, that this version might NOT work on Kindle Touch, as baf
mentioned that using no images for buttons crashes the matchbox keyboard. On the PW this all works - it only uses: tab, capslock, shift, ctrl, alt, a/F, A/L, return, arrow-keys from the images. The rest the keyboard puts in itself. Just to verify, please someone test this on a KT. If it does not work, I will make another version with images.
: finish this layout with extra keys, make compatible for KT (if it doesn't work), do the whole hula-loop again for a more standard Qwerty layout.
Attached is the layout that can be dropped in as is on PW (tested), and 3 screenshots with normal, shifted, capslocked screenies. Please make sure to make a copy of the normal keyboard-wide.xml before copying this one over.
Please see update note 2.
UPDATE: Unfortunately no images still does not work on Touch, even with 5.3.2. - thank you twobob for testing.
UPDATE2: Removed the attached xml file. I am much more happy with the result in post #126. That one has potential to work on the Touch.