Why is this MOSFET KVL to find VDS not right?
An ideal current source dictates the current, but can have any voltage across it. The voltage across it is dictated by external components.
Likewise, an ideal voltage source dictates the voltage, but can have any current flowing through it. The current is dictated by external components (which may be on their turn be controlled by the voltage of said voltage source).

Because \$V^{\_}\$ is below the ideal current source and the voltage drop across an ideal current source can be anything, it is useless to use  \$V^{\_}\$: it will not say anything about \$V_S\$