I killed my friend in the overworld and he kept his stuff, then after that, another one of my friends killed himself in the overworld by jumping off a cobblestone pillar he built and kept his items after that. Then a little later after that, the same friend got stuck in lava at the overworld and couldn't swim out of it because it kept rubberbanding him back into the lava, so he died and lost all of his items. KeepInventory was on and we could tell it was on because of the times we died before, yet he still lost all of his items.