This works fine for this server, which is at 10.01. However, the same approach does not work on our 10.1 server: it ignores the separateImage and instead sets the KML to use the composite option.
It turns out there is a misspelling in the expected separateImage parameter - it works if I use "seperateImage" instead! Oddly enough, the ...MapServer/generateKml page uses this misspelling to generate KML that does separate layers. Hopefully the software team will correct this; meanwhile heads up if you're generating such links.
BTW, I do not work for ESRI - I did but left the company in 2009.
