Did you configure /etc/samba/smb.conf to match your Windows network? Does it have "encrypt passwords = yes"?
Did you add users to the Samba password file with "smbpasswd -a username"?
Those are the bare minimums to getting Samba working correctly.
And you shouldn't use telnet... It sends everything, including your password, across the network as plain text. Not even a hint of security. Look at ssh instead. Think of it as secure, encrypted telnet.