That's the problem, it doesn't say that it doesn't require line of effect and my DM is ruling that it works just like every other spell and saying that it does. I haven't had any luck finding anything contradictory within any of the FAQs or Rules of the Game articles, nor in expanded psionics or lords of madness.
Point your DM to page 176 of the Player's Handbook,
Line of Effect. Point out that it indicates what a
spell can affect, not what
magic can affect. Next point him to page 315 of the Monster Manual,
Special Abilities. It shows that Supernatural effects are their own kind of special ability (not spells, not even spell-like abilities) and describes the general rules for them. Now send him to Monster Manual page 316 and ask him to tell you whether Telepathy is labeled "(Ex)", "(Sp)", or "(Su)".
Ask him to show you where Supernatural abilities require line of effect by default, while you're at it.