There could be a couple reasons you're seeing this behavior, besides the possibility that it has a bad power supply.
If you can't telnet to it, can you ping the Portserver II? If not, the network may be down. If you can ping but can't telnet, there may be a firewall blocking TCP port 23 (telnet), or there may be a device with a duplicate IP to the Portserver II somewhere on the network.
As far as not being able to login to the Portserver II locally, this could be caused by the way the device is configured in the Portserver itself. If it was set to dev=prn or dev=rp in order to use the Realport driver, this setting turns off the Portserver's innate login prompt on those ports, so that might be the reason.
To factory default the unit, turn the Portserver II off, then hold the two front panel arrow keys in. While pushing in the arrows, turn the Portserver II back on and continue holding the arrows in until the Portserver II displays CL. At that point release the arrows, then cycle power on the Portserver II normally. It should come up at default (and give you a login on the terminal again since dev=term is the default setting).