If you just want certain users to be able to login to this box, then you'll have to set up authorization. In the 2924 do:
> aaa authorization exec default group radius none
Then in the user profiles on the Radius server, for those users that you want to be able to telnet into this device, you have to return the Service-Type attribute (Radius IETF attribute number 6), with a value of Nas-Prompt (7).
As for your fallback question, you already have it configured to fallback to the enable password (that's what the "enable" keyword is after the "radius" keyword on your login authentication line). If you want it to fallback to the local username database, then you'd change your current line to look like:
> aaa authentication login default group radius local
Under Interface Configuration - Radius IETF, check the boxes to make the attributes appear under the User profile rather than just the Groups. Then go back under the user and select the attribute.
The authentication method can be either IETF or Cisco IOS/PIX. All hosts will use the IETF attributes, setting the NAS as something else other than IETF simply means theres a few more options for you to choose from. For example, if you use the Cisco IOS/PIX auth method, you can then check any of the IETF attributes AND anything in the Cisco IOS/PIX attribute section.
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