I have not practice much with telneting, but just to discover what information the webserver would spit out, but check this link --------->http://cracksandhacks.wordpress.com/2007/10/02/telnet-hacking/

Also as a literary side note, I didn't feel like Hacking for Dummies really did a great job with explaining the basics. If I were you, and if I happened to be in the market for a good pentesting book, I would look into 'Penetration Testing and Network Defense'-Whitaker and Newman. It's basic enough that beginners can understand and technical enough that you can understand what's being said and actually learn something.

Just a helpful suggestion...I've read 'em all:-)

Indeed it is. I forgot about that one.

Some others:

Gray Hat Hacking- Harris, Harper, Eagle, Ness
Shellcoder's Handbook- Anley, Heasman, Linder, Richarte
Hacking Exposed series- mostly by McClure, Scambray

That depends. What's the OS of your virtual machine?

But it'll run Vista and XP? Never come across that problem, now I'm confused.....

I would also recommend you to search through this and similar websites as there are many newcomers with same or similar questions.

Just start with a few basics like networking, programming etc. and improve yourself continously. The discs mentioned by Jhaddix, the De-ICE ones, are really great for getting some experience with the whole process of penetration testing and tools which can be involved.

Another thing you may try out if interested in Linux may be DVL - Damn Vulnerable Linux. This is a linux distro which was designed to offer vulnerable services to allow different attacks.

VMWare is one of the best programs you can use in my opinion and you should definetily consider to upgrading your RAM in order to get it running smoothly. Later on the chance is high that you will use this software on a regulary basis for various tasks.

In this and other threads already a lot of books where recommended to you, so just pick the ones which looks interesting to you and start.

If you have any specific questions please feel free to ask but you have to do the work by yourself.

I sort of went down the same path as you (hacking VM's etc..) when I first got a computer and abut the same time I bought "Pentesters Open Source Toolkit".  It was one of the best books I have read and I still refer back to it all the time.

As for telnet, here's a link to some commands

http://technet.microsoft.com/en-us/library/c.aspx


Cheers

Syn