In certain circumstances, some ArcGIS Earth 1.6 users are unable to view KML content after checking on its visibility in the Table of Contents (TOC).
A fix for this issue is included in ArcGIS Earth 1.6.1. Users can download and install the latest release of ArcGIS Earth here - http://www.esri.com/software/arcgis-earth to view all content including KML and enjoy all its new features.
For more details see KB article created to support users who have this issue http://support.esri.com/en/technical-article/000016665