what's wrong with my circuitry or understanding of midi ?
Hard to tell when half the components can't be seen. And while you are at it how about posting the code as well.
It sounds like software, or the other end of your hardware.
If MIDI out works without an echo with nothing plugged in, it can't be the Aduino hardware can it. If that same MIDI output gets echoed back then it must be your keyboard that does the echoing.