Richard, think of how a camera works. The lens collects the light, and the film plane "captures" it. Translate this to your telescope. The telescope is the lens, and the eyepiece is the (now moveable) film plane. What happens as you move closer to the film plane? You see less of the film plane, hence you are seeing a smaller piece of the world blown up to fit your eye. Thus, as you move closer, you are actually magnifying.
Now, if you made the focal length of the telescope longer, then the situation would be analogeous with the camera.
Apologies to the real telescope people: I recognize my paragraph was a bit more hand waving then exact optics, but analogies often get the point across better than equations.