Mandrake 10.1 comes with kernel-2.6.8 and Mandrake backports any important security and bugfixes into updates to it (which is why you see only kernel-2.6.8 in the list to updates). This is the same as Fedora Core 4 comes with 2.6.11 (the latest is 2.6.13 at kernel.org) and Fedora backports bug fixes and security patches into it. Neither distro will ever have the latest kernel unless you download and compile the source for it from kernel.org.
Mandriva 2005LE (the latest publicly available) has 2.6.11and Mandriva 2006 (just released, but only to club members ATM) has 2.6.12. There should be nothing wrong with 2.6.8 and you can certainly get your Nvidia drivers working on it. Unfortunately you'll still have to reinstall the Nvidia stuff if you get a one of Mandrake's kernel updates for it, even though it doesn't change the major version number. Newer Mandriva distros have DKMS which solves this problem, I'm not sure if its only for the club versions though