I managed to get a hold of the Zugg and he had the following to say about the issue:
Thus, it appears to be a client issue.  However, I would still like to find a way around it.  Is there a way to identify the type of client that is connecting to the server? For example, telnet or zMUD could be uniquely identified.  If that is possible, then perhaps I could code where the asterisks would not even be sent with zMUD since more people use the command line input box at the bottom moreso than the console window itself.

I believe zMUD supports the option, which will allow you to distinguish it.

Mushclient also correctly identifies it and several glitches that existed in negotions have been corrected in recent versions. There is even an option you can turn on to convert certain codes, which some muds use to indicate a prompt, into a "newline+charage return" as they arrive, so the client actually sees a prompt. Other clients get around this I believe by keeping the current 'state' of the input and matching on partial lines, which haven't terminated. I'm not sure if I agree with the reasoning of that allowing this, except that you can't do:

Match="You see a red bunny", sequence=1
Match="You see a *", sequence=2

And avoid having the second one match on a partial line, even when it should only match the first one. While there are obviously solutions to this, Nick chose to simply only deal with lines that end with /n/r.

Anyway, sorry for the side track, but I think most clients do respond to the client ID sequence, but I might be wrong.

Whenever I use the NAWS protocol, I noticed localecho on telnet does not seem to work anymore.  Would there be a reason for this?

I know I can use the ECHO protocol and send any input I receive back to the client as output.  However, always doing this seems like unnecessary processing on the server side.

Thanks again!

- Khadgar

All occurrences of 255 should be doubled when sent, to differentiate them from IAC. Hence, any incoming IAC IAC should be interpreted as a 255.

Thus, if you were receiving a NAWS subnegotiation which reported a width and height of 255, 256, then you would receive:

IAC SB NAWS 0 255 255 1 0 IAC SE

Note the double-255.