What color space do you use on your Nikon camera for RAW

Since you are using adobe products to do the RAW conversion they will ignore the camera setting. So it really doesn't matter. You can change the color space setting in Camera RAW or Lightroom at any time and your new conversions will use those settings. I would leave the camera set at sRGB though, so your JPGs stay as sRGB as you are used to, which is probably best for sharing photos.

RAW doesn't care about colorspace at all.

I find I get more natural colors, especially greens, and blacker blacks with Adobe RGB. You should test both modes yourself to see what works best for you.

RAW has no inherent colour space. You can assign it any space as this setting does not influence the data at all.

The difference is more that of interpreting the numeric data and occurs later in the processing work flow. If you set your RAW converter to use Prophoto or Adobe RGB or sRGB, this actually is a command as to how the original data should be interpreted. If you are not satisfied, choose another colour space and rerun the conversion. Simple as that.

To avoid or at least mitigate banding issues, stay in a large colour space (16 bit) during editing and downsample to 8 bit at the last possible moment.

As mentioned over and over again (a nice testament to this photo.net's combined knowledge and spot-on facts), your choice of color space does not affect RAW files whatsoever. However, if you're shooting RAW + JPEG, then set your camera to sRGB. This way, your JPEG files will not need any conversion to be posted online, sent to family/friends, etc.

As others have said, you can choose the color space in the 'darkroom'. But I would add my experience.
I use Capture NX2 for .nef -> .jpg conversion, so my workflow is a little different than yours. But I no longer shoot .nef+.jpg since I rarely, if ever, used the .jpg out of the camera.
Usually I will at least crop and re-size then save as .jpg for sharing, printing, whatever.

ProPhoto RGB (see Luminous Landscape article) retains the most data. Some people want to use this color space for processing, converting it to the final desired color space only at the very end (e.g., to sRGB, say, for printing or the web) - for the reason that one would rather have more info than less during editing (as mentioned above by Bjorn). This seems to make sense, especially if you process your images a lot.

'I see some banding and posterization and am not very happy.'

If you're shooting raw, it's always worth having a copy of one of Nikon's own converters on hand to compare with the results you get from Adobe. This will tell you if the problem is with the conversion itself or elsewhere (and you'll also get slightly different colours by default, which you may or may not prefer). The free version is ViewNX:
http://nikonimglib.com/nvnx/

I would set the camera to Adobe RGB. As others have pointed out, this has no effect on the data in the raw file, but (at least on most cameras) the histogram shown on the camera is from the JPEG that's generated along with the raw data. When you set it to AdobeRGB, this JPEG (and therefore the histogram) will be a little closer to what's contained in the raw data.

One other minor detail: at least on many cameras, when you set it to AdobeRGB it'll change the file names slightly, so they start with an underscore. That doesn't make much real difference, but don't be surprised when/if it happens.