Debug would be useful to see where the problem is; if you are using MS-CHAP, there may be issues on the 1600. First ensure that you are running latest 12.2T code (this will have additions for MS-CHAP version 2). Next, please collect "debug ppp neg", "debug ppp authen", and "debug aaa authen" from the 1600 to see what is happening during the authentication phase.