Are you trying to telnet as Root? By default, remote Root logins are disabled. You have one of three options:
1)Telnet as an unpriveleged user, su - root. FTP has no easy workaround - FTP as unpriveleged user, manipulate files via telnet.
2) mv /etc/securetty /etc/securetty.old (downgrades security significantly)
3) look at SSH which is a significant improvement over Telnet/FTP in terms of passwords not moving cleartext over the network.