I skimmed through the Authentication RFC (
RFC 4252) again, and didn't see anything about negotiation of password echoing.
Also, there's a big difference between SSH and Telnet: as soon as you connect to a telnet server, it controls the connection and all output. So if the telnet server decided that you should see asterisks when entering the password, you will see them. If it decides you should see percent signs instead, you'll see those.
And no, when you're still authenticating in SSH, you don't have a terminal yet. You're connected to the SSH server, which usually runs as a daemon, and doesn't have a TTY associated. Only after successful authentication the connection is assigned a TTY (if the client requests one).