I have been using kmonad for the last couple of days, what I have done is set my XKB keyboard configuration to standard GB qwerty with no extras, so I that can be sure kmonad is doing all the work.

So far I haven't found found any issues with Extend. Home row modifiers work well. I also see no reason why you couldn't have arbitrarily many Extend layers, and defining them as press-hold, tap, or toggle layers as you see fit. It also works in console mode of course which is another advantage, and doesn't seem to cause the weird side effects like the Google Spreadsheet ISO_Level5_Shift problem.

However, although it seems good for Extend, there are drawbacks with standard mappings characters and symbols. I have made a basic symbols layout to mimic my AltGr layer, but this is somewhat more limited, as I can't include arbitrary unicode characters. Another thing I noticed is it may mess up key bindings in games. For example, I tested it with Factorio - this is a game that ordinarily detects your keymap, and if you are using Colemak, will automatically set direction keys to WARS etc. But of course this breaks when using my kmonad config, as I'm using qwerty according to the OS.

I suspect the optimal situation might be to use XKB for base layout and extra character/symbols layers, but use kmonad for Extend or non-glyph functionality. But that means having to rely two pieces of software instead of one, which isn't really ideal either. I'll continue experimenting and report back if I find anything else noteworthy.