If you have a SET KEY \127 xxx command in your K95.INI, K95SITE.INI, or K95CUSTOM.INI file, this overrides the Backspace Key setting in the Dialer's Keyboard Settings page, even though the Dialer script is executed AFTER the INI file. Fixed in the next release.
This is likely not fixed in our version of the dialer which is based on K95 2.1.2
From the K95 bugs list:
This is likely not fixed in our version of the dialer which is based on K95 2.1.2