kai sounds like its being pronounced "kyay", almost asian. is that right or am I hearing it wrong?
Yes, kappa before front vowel sounds (i, e) often gets palatalised to what the IPA writes as [c] -- it sounds a bit like "ky-".
(Some dialects even turn it into a full-blown "ch" sound.)
They are both of neuter gender, yes -- in origin, they are both diminutives.
(So, more or less the same story as German Mädchen.)
I think of it like "they are not old enough for us to care about their gender". Whether this is true or not, it helps me remembering.