Not quite. SCCP phones will always send the StationInit KeypadButtonMessageID event when a button is pressed. If SIP KPML has been negotiated between CUCM and the gateway, CUCM will generate a NOTIFY with a KPML payload and send it; the phone doesn't do this.
If CUCM negotiated rtp-nte, it will instruct the phone to also send RFC2833 RTP packets in the media stream (different payload type). CUCM cannot generate these on behalf of the phone unless it invokes an MTP to proxy the RTP streams.
Also, the 7940/7960 DO support RFC2833 in their most recent firmware. The SRND documents this on the Endpoints page, Table 18-12. There is a checkbox on the phone that you can disable RFC2833 support and this should be unchecked.
So, "should this work [with a 7960]"? Yes.
Is 'dtmf-relay rtp-nte sip-kpml' (order denotes preference) a good command? Yes. It's my default config to cover applications such as CCX or phones such as the 7936 which truely don't support RFC2833.
Why doesn't it work? Good question. The first thing that comes to mind is whether the payload types differ between your UX gateway and CUCM/the phone. If memory serves (I would have to packet capture this), I believe Cisco sets it to a type of 100. Second, is if an MTP is getting invoked (e.g. you're forcing Early Offer) on the call? If it is and you're using IPVMSA instead of IOS this won't work.
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