As an aside and for what it's worth, few MUD servers actually implement the telnet protocol nor do most MUD clients.
Anyhow, I'm not aware of any active C# projects and I didn't turn up anything in the listings that Erwin and Tyche each maintain.
Your best bet may be to grab SocketMUD source code (C, C++, and Java) to see how the main MUD loop is handled in one of those languages and then adapt it to C#. In that regards, the Java source will probably be closest to C# since C# borrowed heavily from Java for code style before branching away from it.
SocketMUD can be found at http://www.socketmud.dk/.