You guys are great :)
I'm a newbie and have been battling this problem the past couple of days, and this is definitely a bug due to an update, I'd think, as I'm seeing the exact same thing. I decided a reinstall of the nvidia drivers might be in order, and in doing some reading up to reinstall them, noticed there was a new kernel available. (2.6.3-7 or some such, from memory). I grabbed it, grabbed it's source, configured Lilo to use it as the default kernel, and then reinstalled the nVidia drivers.
Thats when I realised the problem all along was that my XF86Config-4 being overwritten at boot.
Just popped in here to see if anyone else was having the same problem, and now I find the fix waiting here patiently for me to read ;)
Another work around, and the one that I've been using thus far, is to let the system load, su to root, use editor of choice to edit and save the updated XF86Config-4 file and then init 3 ,then init 5. System would work flawlessly that way and load the correct drivers (as Harddrake is already loaded I guess, and not looking for new hardware at that point). It's a pain, but does work.
Edit: How can I tell if someone has submitted this to Mandrake in a bug report? I looked at the FAQ but didn't see anything about submitting bugs, etc...