MH> I tried GameSrv (TelnetDoor) and had the same issue so it must not be
 MH> creating a binary connection, either.  It wasn't clear as to just being
 MH> a "double telnet" related issue or something else.

There is no such thing as "creating a binary connection" via telnet.

Telnet options are negotiated after the connection.  Binary mode is something
the server would request and the client would respond to.

One way to test Mystic specifically is if you use the outbound telnet to
connect to your own Mystic BBS again.  The transfers still work even when you
connect through multiple telnet connections.  I just tested that again in the
latest Windows build and the transfers were working fine with NetRunner
Zmodem.

--- Mystic BBS v1.12 A46 2020/06/11 (Windows/64)