Probably the most common misunderstanding I've come across is that Keyline is all about 'the plow.' While the keyline plow is an incredibly elegant and sturdy award-winning piece of design engineering, this is one small (but most famous) part of what is actually a far wider holistic integrated design system, which sets the context for use of the plow when using the whole system.
I maintain in fact that Yeomans' visionary whole-farm planning innovation - Keyline Design - in effect made Permaculture possible... That, though visionaries in their own right, Holmgren and Mollison were largely developing trails that had been blazed by P.A. Yeomans... (of course we all stand on the shoulders of giants)... more on this and on Yeomans Scale of Permanence planning guide in my earlier article: Planing for Permanence - KSOP
Another common 'myth' often taught in Keyline sections of Permaculture courses and other places (and perhaps a close runner-up or contender for most common misunderstanding) is the idea that using the keyline pattern cultivation with the sub-soiler will somehow make the water "run from the valleys out to the ridges." In reality this will not happen. What does happen during rains or irrigation is that water that lands on the ridges will stay there and soak into the soil and be held there, instead of running down into the valleys. So the ridges stay hydrated instead of drying out as they tend to do if the water cycle is ineffective. This is not the result of water running out there from the valleys though, as is sometimes said. At most, in a huge rain event with total soil saturation, where the ripped grooves were full of water too, the tendency to drift at all should be in the direction of the ridges... but the actual distance the drift travels is likely to be very little, if any. In the end, this is perhaps just a technical point, as the main point is that an effective water cycle is created across the whole landscape.
Whole Systems Design, Consultation, Education, Group Facilitation