SleepyDaddy Software have published this preview of a Telnet client for Windows Phone 7.5.
Mango for the first time supports sockets by 3rd party software, enabling creation of such applications, which are good not just for playing text-based games, but also of course administering servers, which should make it much more useful.
Jeremy is planning to add more features, such as a favourites menu and the ability to pin a host to your start screen, as well as the ability to run a script on startup to, for example, automatically log into the server.
The software is not in Marketplace yet, but should be available once Windows Phone 7 Mango rolls out.
Update: SSH support is also planned!