If you can adapt your solution, telnetlib seems like the right way to do it -- +1 to xitrium.
That said, though, if you're dead set on piping the output of telnet into your Python script, it'll be coming in on standard in. That means you can do something like this:
try:
while True:
line = raw_input()
do_stuff(line)
except EOFError:
pass # the telnet process finished; there's no more input
which will grab the output from telnet, one line at a time. If you want finer control, you can get the input using sys.stdin.read().
Important: In your question, you said (for example) telnet 192.168.255.28 > process.py. This is wrong; instead of piping the output from telnet into your script, it will save the output to file, overwriting your script. What you want is a pipe: telnet 192.168.255.28 | process.py.