The short of the story is no, the Keystation is likely not defective, it's just sending messages that the Roland is confusing for something else, explained below in more detail. The solution may be to perform a hard reset of the Keystation. Here's how:

1. Power off the Keystation
2. Hold the + and - buttons for 3 seconds while powering the unit on. This can be performed more than once if you're unsure if you timed it correctly.

In more detail, here's what's happening. In MIDI, there are two ways a note can be told to stop playing: Sending an actual note off message for say, the C# you just pressed and released, and sending a C# with a velocity of zero. Most sound modules interpret the latter as a note off message and work fine. But many Roland modules see this as another keypress. So if you've simply pushed a C# and released it, the Roland interprets this as a note on (play the note) at whatever velocity you pressed it at, as well as to play ANOTHER note at velocity zero (silent) when you release it. The next note you press also sends two note on messages, and so on. So very quickly, all the notes the module can produce are still playing, to the Roland, they have never been told to stop playing, and you're out of polyphony. The only thing it can do is start shutting off notes to make room for the new note to play.
So the Roland is getting this information:

Play C# at velocity, say, 100
Play another C# at velocity zero (when you intended to send it a stop playing this note command)
Play an F at velocity, say, 115
Play another F at velocity zero
...and so on...
Play an E at velocity, say, 88. Whoops, all notes are already playing, need to cut one off to make room for this note.
Play an E at velocity zero. Again, no more room, need to drop a note.
...and so on...

We have found that the M-Audio Keystation, when reset, seems to go back to sending true note off commands which will alleviate this problem.

Please note this is not a defect or a bug, rather just two pieces of hardware not quite communicating on the same level, and it is through the fault of neither manufacturer, but it seems to be correctable through a hard reset of the Keystation.