Jonathan has found something Rotten

Jonathan writes...

I am a new developer in and they are trying me out as a contractor. Everything was good until I got access to work on their Linux boxes. I got an excel sheet of all username/passwords. I felt sick when I got that, but I really got sick when I saw the boxes that i will be working in had kernel 2.6.x. I went to my team lead and was told if the client does not want to pay for the upgrades then they do not get the upgrades.
What is the best way do I tell my team lead/boss/department why/how bad of an idea this is?