I'm Swedish, not Norwegian, but I can understand not making the connection between "Kjølen" and "Kjolen" because both of those are words and have completely different meaning, and as you say 'ø' is quite distinct from 'o'.
Just to take a random example, if you were to say "Bird Peak" instead of "Bard Peak" it wouldn't be immediately obvious what you meant.
Just to take a random example, if you were to say "Bird Peak" instead of "Bard Peak" it wouldn't be immediately obvious what you meant.