Your code snippet looks ok, I tried it in this jsFiddle and it works as expected.
Could you please verify what version of KendoUI you are using? MVVM is part of the latest beta release and is not supported in previous versions of the framework.
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Thank you Alexander. That nails it! I downloaded the GPL version 2011.3 1123 (Nov 29, 2011) of Kendo UI Web, so that is my problem! It's just a bit confusing that the MVVM examples are included in the zip you get with that version...
No worries though. I will try out the Q1'12 Beta...