Ok I suspect that you are droping the returning packets from
the server you are trying to telnet to, I.E the telnet packet
goes out but the reply packet is being dropped. Try setting the
input policy to accept for 30 secs and see if it works, if so
then set it back to drop and add

   iptables -A INPUT -m state --state ESTABLISHED,RELATED -j ACCEPT

To your fireall.

Alternatively with a policy of drop for outbound packets you
might be dropping the outbound telnet packet. I haven't trawled
through them trying to match rules to your destination host. If
the above doesn't work, try changing the outbound policy for 30
secs and see if that fixes it, then add the appropriate rule.

HTH

Pete

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SLUG - Sydney Linux User's Group - http://slug.org.au/
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