My bet would be that they weren't allowed to wear a badge Quill... hence the capital Q. That's how I differentiate between my house key and my badge Key.
Not that it really matters.
AFAIK, the only thing our NMs are not allowed to wear is a Key, our badge. They could wear a t-shirt with a key on it or something, though. We encourage them to wear their NM pins as a symbol of the promise they've made, and to wear all sorts of other 'nalia for advertising and pride. I've never heard anything about our crest being reserved for initiated members. Come to think of it, I've only ever seen one sweatshirt with our crest on it. So that's kind of a moot point. If any other Kappas know, please weigh in.
And I'm with OTW that it's very important to follow your HQ's policy, whatever it is. I get nervous when I hear about chapters that don't follow policy on little things like this; it makes me wonder what else they're doing that isn't HQ-approved.