I have not used Telnet in years, and never with Win7 so not sure I can be of help there. Do you get an error when you try to connect? I've seen where running as administrator is necessary too. I've also seen where
PuTTY was suggested as an alternative to Windows Telnet.
Most problems with IE are due to corrupt or conflicting add-ons. If you go to Start and in the search box, start typing Internet Explorer until you see Internet Explorer (no Add-ons), then click on it and see if you can access. If you can, then you have an add-on problem. Alternatively, you reset IE. Go to Tools > Internet Options > Advanced and click Reset then follow the prompts.
Have you scanned for malware?