I have not ridden the bike properly, just around some small trails by my place but I know I have the exact same issue with lack of damping and damping adjustability. The front is nothing like it was whens I got the bike 2 years ago. As for feeling a difference in rebound just pushing with your arms, you should. I was on two different bikes this past weekend. I turned the rebound to full in and full out and there was a very pronounced difference in rebound effect just sitting there and pushing on the bars. So now I know I'm not going crazy and I did see a huge differnce when I first got the bike and backed of on the rebound clickers.
And now that I have learned all about the valves (even the cartridge valve has shims in it, or mine does anyway) I have deduced that it is most likely my mid-valve piston bands. Damping is effected in both directions so it makes sense considering the lower valve and shims are fine, sealing properly and not warped, the shim stacks on the mid-valve are fine and nothing is stuck in the cartridge valve shim stack keeping it open. All seals are fine also. So, oil is getting by too easily somewhere and I strongly suspect it's the piston bands. I don't see anywhere else that could cause this problem.
I found this in an article - "Check the piston band by placing it back on the shaft with a nut and sliding it into the body. The band should compress and provide a significant stiction to the body wall. If it is lose, or moves too freely then the band and o-ring should be replaced. Simply slice the old band off and install new o-ring and band."
Now that article wasn't about my particulair KYB's but it does directly address my concerns about the free play I have been on about all this time that I see with the mid-valve. And yes, you can easily get mid-valve piston bands for replacement. I have found a couple places on the net that supply them. They cost from $25 to $30 each from what I have seen so far and are easily ordered.
So, this is my next step and I shall see if I get my adjustabilty and damping back. I'll keep ya's posted.
Thanks for all your help guys :)
John