I took at look at the settings on both the Ubuntu and Kaypro ends.
Output of stty -F /dev/ttyS0 -a:
speed 9600 baud; rows 0; columns 0; line = 0;
intr = ^C; quit = ^\; erase = ^?; kill = ^U; eof = ^D; eol = <undef>;
eol2 = <undef>; swtch = <undef>; start = ^Q; stop = ^S; susp = ^Z; rprnt = ^R;
werase = ^W; lnext = ^V; flush = ^O; min = 1; time = 0;
-parenb -parodd cs8 hupcl -cstopb cread clocal -crtscts
-ignbrk -brkint -ignpar -parmrk -inpck -istrip -inlcr -igncr icrnl ixon -ixoff
-iuclc -ixany -imaxbel -iutf8
opost -olcuc -ocrnl onlcr -onocr -onlret -ofill -ofdel nl0 cr0 tab0 bs0 vt0 ff0
isig icanon iexten echo echoe echok -echonl -noflsh -xcase -tostop -echoprt
echoctl echoke
Photos of the Kermit settings on the Kaypro:
http://imgur.com/QfoJrPg
http://imgur.com/R8b84B1
In checking the user manual for the CP/M version of Kermit 4.11, it doesn't seem like there's even a way to change the word length for Kermit...
ftp://www.columbia.edu/kermit/pub/cpm80/cpkerm.pdf
...so I figured it was hardcoded at 7 bits. I changed the Ubuntu side to match with cs7, started up another getty - and same thing, just garbage characters.