Hi Samantha,
Making KC convertible into a real currency has too many legal
implications for us to pursue any time soon due to recent FinCEN
guidelines for anti money laundering registration requirements for
virtual currencies. It isn't even clear at this time whether Second Life will be able to continue keeping L$ convertible into real money.
That said, you'll be able to sell your Kitely Market items for USD and/or KC. If you sell them for USD then your sales revenue (minus Kitely and PayPal fees) will be automatically deposited into your PayPal account without any need to exchange KC.