Despite the message printed out at startup, Sep 3 17:51:08 ladyluck xinetd[22847]: xinetd Version 2.1.8.9pre8 started with Sep 3 17:51:08 ladyluck xinetd[22847]: libwrap Sep 3 17:51:08 ladyluck xinetd[22847]: options compiled in. Sep 3 17:51:08 ladyluck xinetd[22847]: Started working: 1 available service Sep 3 17:51:11 ladyluck xinetd: xinetd startup succeeded /etc/hosts.allow and deny have no effect on the processes spawned out of xinetd by default as inetd has in the past. This is something that should be looked into, as none of the available documentation easily shows how to use tcp wrappers with xinetd, and it really needs to be there.
The correct usage with the beta is servicename ("telnet") instead of servername (i"n.telnetd"). This has since been changed anyway, both in our trees and in xined itself - it now uses the old behaviour (though I admit to much preferring the new one)