Dear JAD/JAD and Manish,
I moved to CA to Lexington-KY back in 2006 and witnessed and experience same scenario. You must have to take both exams even if your out of state license valid Unless you have GC/Citizenship. Please let me know if you need more info. 
Information Purpose: Atlanta-GA, you don't have to give any exam and just get new license as long as have address in that state. 

I have not taken test but I am planning to do on next month sure by first week as my tax state was not KY.
I have taken subscription from testquestionandanswer which I went through at one shot when I was in Oregon. this takes around 20$ for 2 month i guess and if you go through this test 5 times correctly you will pass in one shot for sure.
there shouldnt be any negative marking.

Thanks for the reply. Have you taken the written and road test. Is there any special stuff to be known while taking the KY road test. Any suggestions you got from your friends? like websites, what all they asked in road test , negative marks in written test etc etc? Thanks in advance.

hi,
even I am going through the same situation.
Yes you have to take the written test and the driving test even though you have valid DL from out of state. and make sure in your payslip the tax state should be KY else they will not give you the blue letter.
you need to go to Bardstown office with all your documents to get the blue letter after that you can take written test.
for H4 you need to get the letter from the SSN office saying that your dependent is not eligible for SSN. they (SSN office) will check the visa status and should provide the letter ( i have not done this process).
so virtually you are applying for a new driving license :)