I have a closed source windows tool I need to run, which has to connect to a remote machine. Problem is, the tool only has telnet functionality, while the remote host only accepts SSH2. Is there some easy way to set up some sort of forwarding service, where I have a local linux host that listens for telnet communications, and converts this to SSH?
You should be able to tunnel the telnet session through SSH similar to the following.
Then you can connect on localhost:23 and have this traffic tunneled through SSH to your server.