Remember that Michael and Kay's relationship was pretty well advanced by that point, and Michael has apparently shielded Kay from pretty much all details about his Family. (She doesn't even know Tom Hagen's backstory, and that actually makes Vito look good.)

So, when he tells her "that's my family, Kay, that's not me," she has every reason to believe him - she's known him for a long time and it really wasn't him at that point.

There's a deleted scene in a hotel room that sheds light on Michael and Kay's early relationship. They are supposed to go to the Mall, and they hatch a scheme to pretend they're still in New Hampshire to get out of it.

It shows Michael's reluctance to mix Kay with his family and also shows a playful side of Michael that we never really see again.

I think Kay was always hoping to get that Michael back.