Well I figured out a few things. I was seeing a missing slash between the userfiles directory and the first sub-directory. The source file has a user files path of ../../files, and I still have a problem that the site definition for the site would not let me browse for a directory, so I entered it in the same fashion as the files listing, /assets (notice I had to insert a leading forward slash or end up with /assets/assets). The correct listing should be /assets/. That causes the slash to be included between assets and events in my example above. See Troubleshooting
The problem with the wrong slashes occurs when there is more than one sub-directory of depth below the user files. It is appending the directory path to the user files directory, adding a / and then the file name. Therefore, one sub-directory is fine (/assets/events/file.jpg), but two or more sub-directories deep is not (/assets/events\event\sponsors/file.jpg.
Editing the file /webassist/kfm/plugins/return_url/plugin.js can patch the issue. I don't think it is the best fix because KFM is still reporting the bad slashes in the file properties, so it doesn't get to the root of the issue, but it does resolve the issue for CKEditor.
Lines 3 & 4 need to add url=url.replace(/\\/g,'/'); so it reads like this:
That fixes the urls being fed to CKEditor. It might be necessary to add a similar replace for the last else condition, but I could not figure out what that statement is for. This works for images and links.