The modern MUSH forks do generally support telnet, but yes -- as a 29 year old who's been pathologically obsessed with "MUD archeology" off and on, I'll confirm -- historically, most MUDs did not do any sort of Telnet negotiation.

Further, most older clients did not anticipate any kind of Telnet negotiation from the server, and will print garbage to the screen if connecting to modern MUSHes that do. (I've tested tinywar, vt, and that one VMS client...)

MUCKs never, to my knowledge, implemented telnet, though. They barely support ANSI escapes, nevermind Telnet. :-)