I was not given the choice whist installing to use the 4.0 server instead its using 3.36.
You have to choose the expert install in Mandrake to get the XFree 4.0 option. Additionally, I believe Mandrake uses /etc/X11/XF86Config-4 instead of just /etc/X11/XF86Config, but I couldn't swear to it. I know Red Hat does, though, and I'm thinking Mandrake is the same.

It's generally a good thing to get the latest version, as chefer said, but I don't know that it's necessary if you don't want a truly massive download like that. You'll still be using the same NVidia drivers from nvidia.com no matter which version of X you have. Or at least you should be.

An alternate way to get Xfree 4.2 is to download the source rpm from Cooker. You'll have to get the source because the binaries in Cooker are compiled with GCC 3.2 and won't be compatible.