Whether you want to capitalize it or not, I have to give the nod to the k. It evokes stronger feelings and images than using the c. Plus, it fits with the overall picture - warriors engaging in combat. In addition, these communications are spoken - so might as well tweak the written dialogue to include more emotion. What is said in battle is often not proper, so I think it should remain as it is.
LeHah is correct, this is stupid for many reasons.
1) It's not how eleven games, ten novels, a dozen strategy guides, a card game, a TV show, a movie, etc., etc. spelled the word. If it's good enough for everything that's ever come before ever then it's good enough for modding a mod.
2) Words have meanings. I can not stress this enough. The "hyuck, hyuck, hyuck, I'm on the internet, I'm free from meaning!" crowd needs to be put on a bus and shot into the sun. The slang term for Kilrathi is *cats* because they look like felines. If it were 'kats' then we would be busy trawling through our OEDs and trying to figure out whether it's because they resmble African shrub trees or are all named some derivation of Katherine (Katerina, Kathleen, Katrina, Katy, etc.) This isn't some arbitrary thing, it is the very nature, the very purpose of words in the first place.
3) The thing you said isn't true. There is no perceptual difference in pronunciation between the two things. "Kat" does not have a stronger 'k' sound than 'cat' (in fact, just trying to force that to work is hurting my tongue.) Furthermore, to interject the slightest bit of editorial commentary into this otherwise completely even handed series of thoughts, people who spell words wrong to create pretend emphasis should be taken out back and beaten with a sack of frogs.
4) By its very nature, a live dialogue transcript is several specific things. In our case, particularly, it is a conceit which implies a neutral viewpoint - Blair and Rollins aren't typing up their conversation as they speak... there's a third party breaking the fourth wall to give that information to the player. It's a function of the narration - not something another element introduced with a new bias.
Mostly, though, it's just dumb. It's "how can I make this concept cuter" applied to Wing Commander's unique-racial-slurs... absolutely unnecessarily. And that comes through the second you see it - whether it's in the screenshot above or in my news posts from 1998.
So, we kewl?