I installed Redhat 7.1 server installation, which starts the telnet server. When i attempt to telnet the linux box from our local network, i get a message "connection failed 10054". When i ping the machine from the network it responds ok.

I have looked at the Redhat support, but it says nothing about telnet in v.7.1, only for v.6.x.

Here it talks about an inetd.conf file located in /etc/inetd.conf but this does not exist in v.7.1. Also, it talks about configuration of hosts.allow & hosts.deny files, which do exist and which i have included the local network in.

Still no joy. Can anyone assist? PLEASE

I've read a similar thread in these forums, which was solved, but it didn't say how

The telnet daemon is spawned by inetd in older RH distributions, and xinetd in newer ones.

Try this (might not be it, but give it a whirl..
Take a look at
# vi /etc/xinet.d/telnet
service telnet
{
disable = no
[...]
}

Make sure it's not disabled.