Internal JPEG engine is not too good in producing smooth output in many cameras and may do very badly in certain cases, this is not specific to Nikon and may happen with many cameras (including mine which produces unberable JPEG output despite being quite pricey).
Desktop RAW editor is your way to go.
I have checked it right now in View NX 2.
I have converted the RAW file to JPEG with default settings. Note that ViewNX does not display developed RAW preview but JPEG preview generated by camera and stored in the same file unless you click "RAW" button in the top left corner - click the button and most of posterisation disappears (as long as your LCD is good enough of course).
Also, there will always be some slight posterisation in sRGB JPEGs (inherently 8bit) because, while they are sufficient for vast majority of applications, most of adjacent tonal values in sRGB JPEG are perceptible. It is impossible to make a perceptually smooth gradient in sRGB (and in most 8bit spaces as well - I just cannot remember any) JPEG because making smooth gradient requires both the colour space of the image and the colour space of the output unit to have several colours between each pair of discrete colours. It happens so that displays are the factor which is harder to fight - most of LCD displays are 6 bit and have additional 2 bit from FRC and most videocards (from AMD/ATI, Nvidia and Intel) do not output 10 bit stream explicitly or do not output it at all.