the reason being that ANYONE can breach the security of a computer running telnet, it wont take 2 min.
then the really scary bit begins, that person "OWN'S" (or atleast can "own" it without much trouble) the computer and as he is inside the network most other machines there are threatened aswell.
using telnet is about as security aware as using wireless lan with wep and other available security measures turned off. one big holle easy to walk or even run trough.

To sum it up telnet is a OLD program that has not eveolved to deal with todays hostile networking environment, just the thought of sending usernames and passwords in plain text, and doing it in a way that any packetsniffer can see and display with help of notepad is not exactly good.