"M-x load-library RET telnet RET" followed by "M-x
customize-variable RET telnet-program RET" and entered the path /usr/bin/telnet which i got by which cygwin but it couldn't find the path. Then I tried E:\cygwin\bin\telnet.exe. Now it just hangs.  I am using  

 

If you are using the cygwin tools you might want to try the cygwin version of XEmacs which works better with these tools. On this version for me, M-x telnet works just fine without any configuration.

andy