I can see where OP is coming from actually. After all, the show does state many times that Mufasa is Kion's grandfather, and here we have Rafiki also referring to Nala's father as "Kion's grandfather". The implication there is pretty gross

[quote="Squeely"]I get the feeling that the line confirms that Nala's father
isn't Mufasa. Else why not say Mufasa?[/quote]
Exactly. If the cub was meant to be Mufasa, Rafiki would have instead said, "It's
Simba's father, Kion's grandfather, when he was a cub." Remember that this is Disney. They had to explicitly state that Kovu was not Scar's son in SP precisely to avoid these types of gross incest theories. I would chalk it up to lazy writing.