I gather that's caused by older telnets misnegotiating line-at-a-time mode
or something like that.  I "fixed" it by adding the line

telnetk         stream  tcp     nowait  root    /usr/libexec/telnetd    telnetd -k

to /etc/inetd.conf, adding

telnetk         22/tcp

to /etc/services, and remembering always to telnet in via
"telnet funhouse.com 22".  The -k flag warns telnetd that the telnet client
is incompetant.