Edit in JSFiddle

$('.buttonSetTest').buttonset();
$('#cbStyled').button();


ko.bindingHandlers['buttonset'] = {
    'init': function(element, valueAccessor, allBindingsAccessor) {
        var updateHandler = function() {
            var valueToWrite;
            if (element.type == "checkbox") {
                valueToWrite = element.checked;
            } else if ((element.type == "radio") && (element.checked)) {
                valueToWrite = element.value;
            } else {
                return; // "checked" binding only responds to checkboxes and selected radio buttons
            }

            var modelValue = valueAccessor();
            if ((element.type == "checkbox") && (ko.utils.unwrapObservable(modelValue) instanceof Array)) {
                // For checkboxes bound to an array, we add/remove the checkbox value to that array
                // This works for both observable and non-observable arrays
                var existingEntryIndex = ko.utils.arrayIndexOf(ko.utils.unwrapObservable(modelValue), element.value);
                if (element.checked && (existingEntryIndex < 0)) modelValue.push(element.value);
                else if ((!element.checked) && (existingEntryIndex >= 0)) modelValue.splice(existingEntryIndex, 1);
            } else if (ko.isWriteableObservable(modelValue)) {
                if (modelValue() !== valueToWrite) { // Suppress repeated events when there's nothing new to notify (some browsers raise them)
                    modelValue(valueToWrite);
                }
            } else {
                var allBindings = allBindingsAccessor();
                if (allBindings['_ko_property_writers'] && allBindings['_ko_property_writers']['checked']) {
                    allBindings['_ko_property_writers']['checked'](valueToWrite);
                }
            }
        };
        ko.utils.registerEventHandler(element, "click", updateHandler);

        // IE 6 won't allow radio buttons to be selected unless they have a name
        if ((element.type == "radio") && !element.name) ko.bindingHandlers['uniqueName']['init'](element, function() {
            return true
        });
    },

    'update': function(element, valueAccessor) {
        /////////////// addded code to ko checked binding /////////////////
        var buttonSet = function(element) {

            // now update the css classes
            // Normally when knockout updates button, there
            // isn't an event to transfer new status
            // to buttonset label
            var buttonId = $(element).attr('id');
            if (buttonId) {
                var buttonSetDiv = $(element).parent('.ui-buttonset');
                var elementLabel = $(buttonSetDiv).find('label[for="' + buttonId + '"]');
                if (elementLabel.length === 0) {
                    // was just a single button, so look for label
                    elementLabel = $(element).parent('*').find('label[for="' + buttonId + '"]');
                }
                // check to see if element is already configured
                if (element.checked && !$(elementLabel).hasClass('ui-state-active')) {
                    $(elementLabel).addClass('ui-state-active');
                }
                if (!element.checked && $(elementLabel).hasClass('ui-state-active')) {
                    $(elementLabel).removeClass('ui-state-active');
                }
            }
        };
        /////////////// end add /////////////////////////// 
        var value = ko.utils.unwrapObservable(valueAccessor());

        if (element.type == "checkbox") {
            if (value instanceof Array) {
                // When bound to an array, the checkbox being checked represents its value being present in that array
                element.checked = ko.utils.arrayIndexOf(value, element.value) >= 0;
            } else {
                // When bound to anything other value (not an array), the checkbox being checked represents the value being trueish
                element.checked = value;
            }
            /////////////// addded code to ko checked binding /////////////////
            buttonSet(element);
            /////////////// end add ///////////////////////////
            // Workaround for IE 6 bug - it fails to apply checked state to dynamically-created checkboxes if you merely say "element.checked = true"
            if (value && ko.utils.isIe6) element.mergeAttributes(document.createElement("<input type='checkbox' checked='checked' />"), false);
        } else if (element.type == "radio") {
            element.checked = (element.value == value);
            /////////////// addded code to ko checked binding /////////////////
            buttonSet(element);
            /////////////// end add ///////////////////////////
            // Workaround for IE 6/7 bug - it fails to apply checked state to dynamically-created radio buttons if you merely say "element.checked = true"
            if ((element.value == value) && (ko.utils.isIe6 || ko.utils.isIe7)) element.mergeAttributes(document.createElement("<input type='radio' checked='checked' />"), false);
        }
    }
};


var viewModel = {
    radio: ko.observable('M'),
    cb: ko.observable('true')
};

ko.applyBindings(viewModel);

<form>
    <p>Using "checked" binding</p>
    <div class="buttonSetTest">
        <input type="radio" id="radio1a" name="radioChk" value='y' data-bind='checked: radio'/>
        <label for="radio1a">Yes</label>
        <input type="radio" id="radio2a" name="radioChk" checked="checked" value='n'  data-bind='checked: radio'/>
        <label for="radio2a">No</label>
        <input type="radio" id="radio3a" name="radioChk"   value='M'  data-bind='checked: radio'/>
        <label for="radio3a">Maybe</label>
    </div>
    <p>Using "buttonset" binding</p>
    <div class="buttonSetTest">
        <input type="radio" id="radio1" name="radio" value='y' data-bind='buttonset: radio'/>
        <label for="radio1">Yes</label>
        <input type="radio" id="radio2" name="radio" checked="checked" value='n'  data-bind='buttonset: radio'/>
        <label for="radio2">No</label>
        <input type="radio" id="radio3" name="radio"   value='M'  data-bind='buttonset: radio'/><label for="radio3">Maybe</label>
    </div>
    <p>Let's try normal buttons bound to same value</p>
    <div id="normalButtons">
        <input type="radio" id="normalRb1" name="radio1" value='y' data-bind='checked: radio'/><label for="normalRb1">Yes</label>
        <input type="radio" id="normalRb2" name="radio1" checked="checked" value='n'  data-bind='checked: radio'/>
        <label for="normalRb2">No</label>
        <input type="radio" id="normalRb3" name="radio1" value='M' data-bind='checked: radio' />
        <label for="normalRb3">Maybe</label>
    </div>
    <p> Current Radiobutton Value = <span data-bind='text: radio' ></span></p>
    
    <p>Do checkboxes</p>
    <p><input type='checkbox' id='cbStyled' name='cbStyled' data-bind='buttonset: cb'><label for='cbStyled' data-bind>Styled Cb </label></p>
    <p> <input type='checkbox' id='cbUnStyled' name='cbUnStyled' data-bind='checked: cb'><label for='cbUnStyled' data-bind>Normal CB Binding</label></p>
</form>

p{padding: 5px}