Yes, the kernel needs support for this. Most stock kernels only have USB-emulation, some stock kernels only have CD-emulation. None of the stock kernels have the ability to switch between the two, that's why a custom kernel is needed. A number of CyanogenMod kernels have support for this, but as far as I can tell, the Note 3 doesn't yet.
I'll have to submit a patch to CyanogenMod to make this work. However since CyanogenMod isn't stable yet for Note 3, if you have a different custom rom/kernel that you use, let me know and send me the link.