So, kcm-gtk edits the file ~/.gtkrc-2.0-kde4 file, but gtk looks for setting info in ~/.gtkrc-2.0
this is easily solved by creating a symlink. Basically, run this command in your terminal:
ln ~/.gtkrc-2.0-kde4 ~/.gtkrc-2.0
Fixed the problem by upgrading to kde 4.8 using the backport ppa.
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