As the Telegram FAQ mentions, there is a 'secret chat' option that does not store chats on their servers.
As for the underlying question of, "does storing chats lower their security?" then that is something to consider. Chats being stored on the server does mean that copies can be made on the server for decryption later. This increases the exposure of the messages. Encrypting the messages means that there is a high cost to decrypt the messages, but there is still some exposure.
Taking this added exposure into account, the real question becomes (as it always does), "what are you protecting from?" If you are worried about secure communications in transit, then Telegram 'appears' to be more secure. If you're worried about secure communications at rest, then WhatsApp 'appears' to have a better model, except that none of it is encrypted.
The answer, then, is 'it depends on your focus', and encryption is better than non-encryption, and there is the Telegram's 'secure chat' option.
November 2015:
New research shows deep problems with the crypto: https://medium.com/@thegrugq/operational-telegram-cbbaadb9013a#.gb7od1j6i