Perhaps I can add some clarification to the transponder issue from an operational "real world" perspective. That is to say, from my perspective as a 22 year ATCS at Indy Center.
Yes, you are required to have an operational transponder with mode C above 10K, both IFR and VFR. If you are IFR and your transponder fails in flight, you can expect to be assigned victor airways and or compulsory reporting points and handled as a non-radar flight. This is especially true for an aircraft such as a KR which will have very little primary (non-transponder) radar return. Also bear in mind that, although the controller is still required to provide you with IFR separation, beyond the minnimum requirements, the level of service you will receive is at the descresion of the controller and may be subject to other operational concerns from an ATC perspective. If you are VFR in a KR without a transponder, don't expect much in the way of flight following, especially from center, as our primary radar is poor at best. In fact it may be non-existant in many areas, especially at low altitudes. This is why my KR will have a transponder with mode C despite the weight concerns. I hope this answers some of your questions. Keith C. Krumwiede Rosedale, IN