SPDIF works with alsa read the comments at bottom of this
Of course the nvpanel wont work. If you want to use the nvpanel you have no choice but to compile a 2.4 kernel.
All linux users should know or at least aspire to know how to compile their own kernel. http://www.linuxdocs.org/HOWTOs/Kernel-HOWTO.html
It is a lot easier that it sounds.