This apparently is a problem that will keep surfacing for Kioti for many years to come, and is perhaps the reason for some of the antipathy that rises from the Kubota crowd. There is a lengthy thread on this topic in one of the Kubota forums (I forget which), but if you will search in the Kubota forums for "kioti" I'm sure you can find it.
Anyway, to the best of my knowledge, the answer is no. Kioti does not build engines for Kubota (although TYM, another Korean tractor manufacturer, uses Daedong-Kioti engines in the Mahindra tractor that they build). In fact, I'm pretty sure that Kioti uses a Perkins engine in the DK65.
I would say that the Kioti dealer's comment is a throwback to the early days of Kioti when the best way to try to sell the tractor was making a comparison to Kubota (hey- they both come from across the Pacific Ocean and they're both orange - they must be just alike). When I purchased my Kioti, I asked the dealer several times about connections to Kubota, but he never tried to make anything of it. He insisted that Kioti has no relations with Kubota, and proceeded to try to sell the Kioti based on its own merits.
It is a shame that there are still Kioti dealers that try to make a sale that way. I believe that it is a fading problem, but is not likely to go away overnight. By the way, don't let there not being a Kioti-Kubota connection scare you away. Kiotis are great tractors.
Take it easy
Tim Gray