Success!
I tried DEFAULT without IPAPPEND, no help.
Here is what made it to work:
DEFAULT:
kiwiserver= (name or IP)
IPAPPEND 2
Now for the odd part:
The files need to be in unexpected locations.
Boot and Kernel images under /srv/tftpboot/tftpboot/boot/
DEFAULT under /srv/tftpboot/tftpboot/pxelinux.cfg/
CONFIG.DEFAULT under /srv/tftpboot/KIWI/
System Image and md5 sum under /srv/tftpboot/image/
Many thanks to Yarny and Jim. Your help is very appreciated!
Dan