In some instances, 'mkenya', or similar, is capitalised but sometimes in lower case. Should this always be capitalised as it is in English?
Yes, nationalities should be capitalized in Swahili as in English. The team asks you to report such inconsistencies (see https://incubator.duolingo.com/courses/sw/en/status).
If your referring to the audio dialog, it's not inputted because Swahili is still being hatched on duolingo.
I know that "ni" means "is/am/are" for things like descriptions, but when we're dealing with locations, is this word used or is it different like in Spanish?
Yes, different words are used, as covered later in the tree in the "Locatives" section (or also in chapter 11 in the much-recommended textbook "Simplified Swahili").
A brief preview: you use -po, -ko or -mo depending on whether you are talking about a definite, indefinite or interior location (a cool feature of Swahili), then you add the necessary subject prefix.