From memory the coloured lead isn't needed, but if you've got it then use it as it shouldn't cause any issues. I can't remember the colour, I just use the one on the list with my cables.
When you use the K-Line cable you need to change the com port setting of something iirc.
On my notebook I have to use COM8 port for ELM, and what ever the other option is for K-line. Its this later bit which I suspect you may not be doing, as its not really mentioned anywhere iirc, I think it was just trial and error by myself.