I have rooted my phone, but why can't I Telnet? I have a T-Mobile G1 and rooted it using AndRoot. I've confirmed that I have root by using Wireless Tethering, I get all the required request superuser permission dialogues.

However when I go to the Telnet application and try to telnet it refuses to let me, I get:

Error While connecting to server localhost/127.0.0.1:23 - Connection Refused.

I've tried various different connection strings (e.g. just 127.0.0.1, 0.0.0.0)

I read that you might need to reboot the phone after rooting so I did and then confirmed again that I still have su by using wireless tether and superuser permissions app.

Is there anyway I can get this working as I'd like to flash Amon Ra's Recovery mod and start playing around with the Roms again.
AFAIK, mostly port 1-1024 on android phone are reserved for system, so the application other than system must use port > 1024.

I never use telnet, but I used ssh frequently to remote my phone, I use SSH server on phone using http://teslacoilsw.com/quicksshd maybe you can use ssh as an alternative to telnet.