I am posting the following information (thanks to 'Scared' on the Cubase forum), in the hope that it is as useful to others as it was to me.

Regarding setting the right kind and number of output channels in Kontakt 2.2, when using it as a VST instrument in Cubase 4. This has been something of a problem for users recently.

outputs in kontakt has always been a bit odd. this isn't necessarily specific to c4.
first, make sure you're using kontakt 2.2 (anything prior doesn't truly support
surround output).
second, make sure you're loading kontakt into the VST Instrument rack: you will
ONLY get one stereo output if using an Instrument Track.
• load Kontakt2, Kontakt2_8out, or Kontakt2_16out into the VST Instrument
rack. it really doesn't matter which one: you get three so that you can set up
three different output configurations for use in cubase. any of the three can have
as many/few outputs as you want.
• don't worry about creating the default midi track: you're going to have to
unload and reload kontakt2 in a minute anyway.
• bring up the Outputs in Kontakt2. add/delete Channels as needed. Use the
Conf./Config button on the channels to set them to stereo/mono/5.1/etc. don't
worry about assigning the physical outputs at this time.
hint: you can rename the Channel name in the channel output configuration
dialog (including characters already mapped to c4)
• when everything is set up as you want, click the red Make Default button.
• close Kontakt2 and change it to No VST Instrument in the VST Instruments
• reselect the same Kontakt2 you selected in the beginning in the VST
Instruments rack (again cancel the MIDI track)
• now go into each of your new channels' Config dialogue and set the physical
output. you should have outputs that match the name of the channel you're
working on.
• again press the Make Default button.
• again close Kontakt2 and change it to No VST Instrument in the VST
Instruments rack.
• last time: reselect the same Kontakt2 as previous steps. this time you can let
c4 create a default MIDI track if you want.
• on the VST Instruments rack, click on the odd little arrow button just to the left
of Kontakt2 and select all of the output channels you would like to have available
in the mixer.
in the future, as long as you want the same setup, all you should have to do is
use the output button/arrow/thingy to select the outputs.