I'm having the same issue with an 851W. No problem connecting using a Linksys WRT54GV2. I have attached my configuration and the debug ppp nego logs below...
Here is my configuration:
nterface FastEthernet4
description $ES_WAN$$ETH-WAN$
no ip address
ip verify unicast reverse-path
ip mask-reply
no ip unreachables
ip directed-broadcast
ip virtual-reassembly
ip route-cache flow
duplex auto
speed auto
pppoe enable group global
pppoe-client dial-pool-number 1
Dialer0
description $FW_OUTSIDE$
ip address negotiated
ip mtu 1492
ip nat outside
ip virtual-reassembly
encapsulation ppp
dialer pool 1
dialer-group 1
ppp authentication chap callin
ppp chap hostname wcdw@pppoe.net
ppp chap password 7 113F4F2746215E
ppp ipcp dns request
debug ppp nego log entries....
000795: *Apr 14 02:12:05.066: Vi1 CHAP: I CHALLENGE id 200 len 33 from "ERX5"
000796: *Apr 14 02:12:05.070: Vi1 CHAP: Using hostname from interface CHAP
000797: *Apr 14 02:12:05.070: Vi1 CHAP: Using password from interface CHAP
000798: *Apr 14 02:12:05.070: Vi1 CHAP: O RESPONSE id 200 len 35 from "wcdw@pppoe.net"
000799: *Apr 14 02:12:05.310: Vi1 CHAP: I FAILURE id 200 len 18 msg is "Request Denied"
