If I could make an educated guess, I'd bet that the HD image is in the wrong directory.
Killer Instinct HD image should be in a folder called KINST in your main ROM directory in an uncompressed form (uncompressed I *THINK*; it works for me so this is what I suggest just to make sure).
For example, my HD image is in c:\MAME\KINST
Same goes for Killer Instinct 2, except it should be in (for example) c:\MAME\KINST2 .
The ROMs can be wherever your other ROMs are.
Just to be sure, I'd check the HD image and ROMs with a utility to be sure you have the right ones. If I remember correctly, the early Killer Instinct emu used a different HD image than the ones MAME likes.
Good luck!
APf