Warning! Science Content!
You're not actually telnetting to port 25 when you do this - you're in fact opening a TCP connection to port 25 in exactly the same way that any client or server would. You're just making the connection manually. Telnet is simply doing the same thing on port 23.
As a result, there's nothing preventing Telnet from creating the connection any more than there is preventing Outlook from creating the connection, although the Windows Vista firewall does work on a per-application basis.
Which is why everyone is answering your question with "There's a firewall blocking you."
That firewall, coincidentally, doesn't have to exist on your computer. It could exist at your ISP (or anyone with a router between yourself and your destination!). If I were in control of the networking at your ISP, I would block outgoing connections on port 25 to any host that isn't our mail servers. This would make your ISP a good net citizen by preventing massive amounts of spam from coming from our network courtesy of various malware applications. ISPs that do this typically request that users with their own (legitimate!) mail servers use their outgoing SMTP servers as "smart hosts". And they probably also rate-limit their connections. And then block anyone abusing it and disconnect them.
Another possible source of the problem is that the recipient's SMTP server could be blocking you. You would know this is the problem when you can connect to some hosts on port 25, but not others. The only way you can find out the reason why they're blocking you (unless their server gives that reason in the error message), is by asking them nicely. After you switch Outlook's outgoing mail server to your ISP's that is.