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What telnet exploit are you using? I can't find a reliable one for Ubuntu. I know it sends passwords in plaintext, but I'm not going to have anyone logging into the box during the exercise. Is there a metasploit module that you had in mind or something else?
Rapid7 provides vulnerable vm's for exactly what you're doing. The project is called Metasploitable
Metasploitable is an intentionally vulnerable Linux virtual machine. This VM can be used to conduct security training, test security tools, and practice common penetration testing techniques. The VM will run on any recent VMware products and other visualization technologies such as VirtualBox, VMFusion. You can download the image file of Metasploitable 2 from