you should not have to telnet to the system you should be able to loggin into a console by typing
I would then change the following line as root in /etc/inittab
change id:5:initdefault:
to id:3:initdefault:
reboot (level 3 no automatic gui start)
login a console
start x by using the following command
startx
if this get you into X then then your problem is more to do with xdm then it has to do with the video driver/setup our such.
I would have a look into the files in /var/log/* specialy /etc/var/messages to see if there not any usefull info there.
if this does not get you on the way try post more info here so we can help
Jean-Pierre