Please provide a reduced code fragment (<15 lines) producing
this behaviour.
Put no database queries etc. in it to ensure that we can
reproduce it easily.

Well, you see, I can't reproduce it without database code. Here's a smaller version that emulates the data structures:

"""
<?php
$row1=Array(
  0 => "Advertising Space",
  "KindNm" => "Advertising Space",
  1 => "",
  "SubKindNm" => "",
  2 => "",
  "SubSubKindNm" => "",
  3 => 100,
  "GrantKindID" => 100
);

$kind=Array(
  "Advertising Space" => Array(
    "" => Array(
      0 => 100,
      1 => 160
    )
  )
);


print("<pre>");
print_r($kind[$row1["KindNm"]][$row1["SubKindNm"]]);
print("</pre>");
?>
"""

The problem: it works perfectly.

Here's the actual trouble code:

"""
<?php
  error_reporting(2047);
...
while ($row1=mssql_fetch_array($result1))
{
  $val=$row1["GrantKindID"];
    if (empty($row1["SubSubKindNm"]))
  { 
    print_r($kind[$row1["KindNm"]][$row1["SubKindNm"]]);
    if (isset($kind[$row1["KindNm"]][$row1["SubKindNm"]]))
    {
      $k=$kind[$row1["KindNm"]][$row1["SubKindNm"]];
      $val=$k[0].":".$k[1];
    };
  };
?>      
        <option value="<?=$val?>"><?=$val?></option>
<?php
};
?>
"""

$kind is also much larger than the small one given above, but I'm not convinced that that has anything to do with this problem.

Changing the code so that 0 is used in place of "" when generating $kind allows the code to run correctly, but it does not solve the problem.

please place this in front of that print_r()
a) var_dump($kind);
b) var_dump($row1);

and append the output here

Ah, I see now. What I initially thought was "" is in fact false. It seems that NULLs in MS-SQL are converted to falses in Sybase-CT under PHP. Lovely.

Well, changing the ""/0 to false in the generation segment fixed the code and explains the problems. Now all we need is for somebody to document this NULL=>false fact. And some documentation about the Boolean type might be appreciated as well :)

I can?t verify if mssql functions are wrong, it?s not
installed here, every function decides itself how to convert
or not to convert, but basically these 4 are not equivalent

$row=array(1=>NULL,2=>FALSE,3=>"\0",4=>"");
var_dump($row);

I agree, the docs could need some update on these (eg. NULL)
and boolean types (resource type too)

Either false or NULL is the only sane thing for PHP to get
in such a case. "" *is not* the same as null, they are
very different from the DB's point of view. I think perhaps
this one should be closed, but will defer to anyone who feels
really strongly one way or the other.

Not really a documentation issue.  Using NULL fields in a database is just bad... but I'm a doc writer.. so take it for what it's worth.

There are two documentation issues here:

1) Nowhere in the documentation does it talk about the Boolean type.

2) Nowhere in the documentation does it say that NULL values from a database become False in PHP. NULL happens, for better or worse.