Besides adding the > symbol to the prompt, be sure to do the "set logging telnet disable" command to disable the log message that occurs by default when you log in via Telnet. This fixed my 4000/6000/6500 CatOS configuration backups and command executions.
set prompt "name"> should fix it.I had an issue with a 2948 and this seemed to work.
Had the same problem as the original poster and this solution works a treat. Cheers maustin!