Cubase does CORRECTLY report RMS levels. The reason why the meter in Cubase goes into the red when set to K-20 metering is because, as mentioned earlier, you’re looking at the PEAK levels (which will obviously be higher than the average or RMS levels). The RMS levels are shown by the dancing horizontal bars. These bars will display the correct RMS level of the pink noise file once the AES17 button is engaged.
You see, the AES17 defines a full scale square wave to be equal to a full scale sine wave. IOW, both measure up to 0dBFS. It used to be that a full scale sine wave would equal 0dB while a full scale square wave would equal -3dB. This was stablished in 1991 (revised again in 1998 and later in 2004) by the Audio Engineering Society in order to improve the measurement of digital audio equipment. Bob Katz must be adhering to the “newer” standard and thus why you need to engage the AES17 button in order to get the correct RMS reading. But, in principle, this shouldn’t matter while performing the calibration process since the pink noise file is already set to the correct level (it simply doesn’t show it unless, again, you enable the AES17 button). However, when it comes time to mix, and you are using the K-System, it is important that you do engage the AES17 button or else your mixes will sound 3dB higher in average level then what Bob Katz suggests with his K-System.
Hope this clears things up a bit.