Currently running 2.6.8.1. - is there some advantage to be gained by upgrading to the newest release, or is this unnecessary if my system is operating without any problems?

If everything is O.K use if its not broke don't fix it.

It is necessary and it isn't. The linux kernel changes all the time with security patches, new drivers, new features, tons of stuff. You don't need to constantly upgrade, especially if you have your system running just so and aren't doing any kernel modifications on your own. For example, I used to run ndiswrapper for my wireless card and you have to rebuild it with every kernel upgrade.

But personally, I like being on the cutting edge of things so I always take the upgrade. And when you upgrade the kernel you can always boot into an earlier kernel if you like. But its really user prefernce especially if you have your sytem running just so.

i like to keep my kernel the same one used to compile glibc
that would be the original one 2.6.8.1 which is just what i am using now also

when i start wanting the new features i upgrade the whole darn thing
sometimes changing the kernel can still make for degrading even though they have done alot to stop that.

as one very angry Solaris driver developer put it once, "Linux people seem to be suffering under the delusion they can arbitrarily change their kernel "