Tiu mentioned in a comment the other day that text was all goofy and formatted wrong via telnet, so I did some investigation.

Bad:
Using telnet from a Linux box, everything looked screwy just like he said.
Using telnet from a Windows box, everything looked screwy just like he said.
Using Gnome-Mud, everything looked screwy just like he said.

Good:
Using Tintin++ from Linux, everything looked OK.
Using WinTin.NET (normally my main client), everything looked OK.
Using Mudlet, everything looked OK.
Using the Basternae Client (becoming my main client as it evolves), everything looked OK.
Using Zeta Telnet everything looked OK, but is in black-and-white.

Plain old telnet reacted differently to a carriage return / linefeed pair than MUD clients did.

After figuring out what the deal was I changed line endings in the server code and it looks like all terminal programs behave correctly now. Your mileage may vary.