Rich-
As Montana Sky posted.... dyed diesel is for off road use, whether it be for farming equipment, construction equipment, boats, railroad locomotives or what ever is not used on a highway, these are exempt from imposed highway taxes and are dyed.
The best I remember about K-1 kerosene it is a low sulphur kerosene that is used in lamps and kerosene burning stoves, K-2 kerosene can be used only in a stove that is flued.
Kerosene and diesel are two different hydrocarbons as set forth by properties and distillation. We all know the basic use for diesel. Kerosene's greatest use is in the industry that you came from, jet fuel.
For the industry standards on kerosene and diesel check out these links. The two most notable items are the flash point and end point. Any point in between these can be controlled by the distillation process to meet specs that are required by either the refiner or the distributor of the product, IE the jet fuel requirements for JP-8.
http://www.cenex.com/Downloads/Kerosene.pdf
http://www.piercetransit.org/purchasing/diesel.htm
Emission standards are a great concern in the auto and other industries as the federal government is continually tightening the regulations. Who knows what lies down the road ten years from now or further and what will be available for compliance.