Other than looking weird, what's bad about it? Given the variety of configurations the KM is intended to support and the geometry they wanted it to have, it makes perfect sense.

Forward facing horizontal dropouts would have probably required them to lengthen the chainstays (and probably the wheelbase) to make it possible to get the wheel in and out.

Vertical dropouts would mean that they needed some other solution (eccentric BB or sliding dropouts) to enable people to run fixed (which is how mine is set up); Either would add cost and complexity and probably reduce durability a bit, while only benefitting some KM users. When I was thinking about building an off-road fixie I looked at the various alternatives and settled on the KM in part because it would let me adjust the chain tension exactly the way I'm used to, without requiring additional moving parts on the frame.