Try enabling capture mode (File\Enable Capture Mode). This should show you the communication with your switch. The created file will be in your CatTools3\Debug folder.
This is the error string that is outputted from the attempt.
<NEWSESSION CatTools 3.10.0 10/23/2014 12:38:22 PM>
<ACTIVITY TYPE=Device.Backup.Running Config>
<ACTIVITY SCRIPT=D:\Program Files\CatTools3\Scripts\Client.Device.Backup.Running Config.txt>
<USERS NAME FOR DEVICE=10.0.0.204--Dell-Stack-6248>
<C OK 12:38:22 PM>
WFMDRetVal=1 Waiting for: "password:"
WFMDRetVal=2 Waiting for: "Password required, but none set"
WFMDRetVal=3 Waiting for: "user name:"
When you telnet in, do you see a User prompt, or User name prompt?
It is a User Prompt.
I am still starting to understand the intricacies of the software but as soon as you asked that I changed the "username" to "user" under the prompts tab and it backed up no issue. Thank you for the help.