General :: Telnet Not Working For Localhost?

I've tried searching for this peculiar behavior, but couldn't find a solution that works for it - I have installed Redhat on my system and have a listener running on port 7878. I wanted to check if the port is accessible from a machine on the network, and so i telnet-ed from a remote machine and it worked. Now comes the weird problem - I used the same command (telnet xxx.xxx.xxx.xxx 7878) locally and it was able to telnet. However, if I try to connect using localhost, meaning, "telnet localhost 7878" or "telnet 127.0.0.1 7878", it gives me the following error:

Trying 127.0.0.1...
telnet: connect to address 127.0.0.1: Connection refused
telnet: Unable to connect to remote host: Connection refused

Here is my /etc/hosts entry:

# Do not remove the following line, or various programs
# that require network functionality will fail.
127.0.0.1 localhost.localdomain localhost
::1 localhost6.localdomain6 localhost6

[Code]....

Not sure where the problem is. I expect telnet to connect irrespective of whether i use the IP address OR localhost when i use telnet locally.