(more rant)
Telnet as a protocol, and at some points as an application, is still quite useful. Some routers accept nothing else. I routinely use telnet as a debugging app.
Telnet is widely used on the network admin side of things. And while MS doesn't exactly service this niche anymore, it's not a wise idea to remove it from the browser. It reduces the already limited usefulness of IE. This is why linux is growing in popularity, geeky net admins make recommendations to the higher-ups about which systems to use... and they aren't recomending MS as much as they used to.
The reason it should stay there is because...
1: It takes next to no resources to go "oh, it's a
telnet://, ok, pass it to the telnet handler"
2: It adds no security to the browser at all
3: Why remove any useful feature of a browser??
Remember that MS bent over backwards to add stuff like tabbed windows to this new version. Well guess what, back when Opera came out only 1% of the people out there used tabbed browsers. But it was a dang useful feature so they worked to add it. While telnet is unlikely to see that sort of growth it's still useful.
DOS 2.0 became popular because of the routines added that simplified programming. MS continues to forget it's most influential market and are paying the price for it. A good example is live.com's search engine. Google owns the PPC market, in order to get people subscribed to MSN's live.com search they are giving people a $200 credit on their account just for starting a campaign. It's taking active bribery to get back to the top.
My point is... the excuse that MS uses to "remove" functionality is nothing but a red herring. It's "hey, we want you to see the web we want you to see, not the way you want to." MS has been doing this a lot lately, ever since Ballmer took over full time. Vista is a prime example of this and why I will never be upgrading to that OS. I do not need big brother watching my every move and requiring that I "validate" my copy of an OS... I won't be treated like a criminal just because I own a computer.
They continue to limit and shape the features they think are important instead of simply enabling end users to make that determination for themselves. I contend this is a bad business move and makes them vulnerable, I also contend that it's a very bad attitude to take with consumers... who are notoriously fickle and tend to take things personal.
(/more rant)