Well, it seems the ssh vs. telnet thing has been done to death here.
Nonetheless, let me add a few things. Apple is using tcpd for an extra layer of security between the internet and you. However, there are no config files for tcpd, and so it is as if it weren't even there (it just allows everything). I highly suggest that anyone thinking of turning on any servers read "man tcpd" and "man 5 hosts_access". There is a lot of stuff there, but you can do something really simple and also very secure, like:
in /etc/hosts.allow, put:
sshd : ALL
ALL : <your IP address>
in /etc/hosts.deny, put:
ALL : ALL
which locks things down pretty solid, but also lets you use any servers you like internally
And, a rebuttal to the very early posters who said, essentially, "idiots! just edit /etc/hostconfig and then reboot or kill -HUP your inetd"
Come on, we're talking about Mac users. To turn on telnetd, you type your password and click a checkbox in a control panel. To turn on sshd, you su root, edit an arbitrary file that is not visible from the finder, a)and send a SIGHUP to inetd or b)reboot, depending on your taste. Which do you expect the overwhelming majority to do?