Hmm... I don't have a KDE menu, since I am running gnome. Adding -u %U in the command from konqueror doesn't do it though. Still propagating windows like mad. I can try logging in with a kde desktop, and see if I can find the setting. Maybe it works, and either it changes how kde deals with itself even under gnome, or I stay in kde. What does the %U do anyway?
I hate this behavior as well, but the -u option only does it for me from the command line. Changing the file association in konqueror doesn't change a thing, i.e. kate is still propagating many windows! This is a pain, why is it now default I am using kate 2.5.8, kde 3.5.8.