Management portgroup has been defined on the vDS, that is why it is a selectable option for the VM. Remove the management portgroup from the vDS and the VM won't be able to use it.
A vDS doesn't care if the portgroup is used as vmkernel or VM Networking. The option to defined it like that isn't available on a vDS. Portgroups can be used for VM Networks or they can be used for functions like management, vMotion etc.
Regards,
Paul
