I could not find it documented anywhere, but it seems to me that Circuit Emulation over IP (CEM) requires CEF.
This normally doesn't come up as a problem because IOS defaults to IP routing and CEF enabled. But, I was using a 2851 that did not need to route. Its sole purpose was to function as a voice gateway for a couple of Nortel clear channel T1 voice trunks. The voice guys were doing some weird proprietary setup that bundles 3 DS0s together for signaling, definitely not as a PRI D channel, so T-CCS or a skinny voice gateway was not an option.
I initially had IP routing disabled (which, in turn, disables IP CEF). I could ping between the CEM peer routers, but SHOW CEM x/y/z showed DOWN UP on the remote CEM peer and an "unknown dest addr" on the local CEM peer.
The fix was to enable IP Routing, which, in turn, enables IP CEF.
IP routing is needed if it is a voice GW, I believe the same is true for CEM, but cef is not needed for either. You can disable cef with the 'no ip cef' command. This is really only changing the switching path within the router, where 'no ip route' disbales the entire functionality(packets sourced from DSPs look at the route table to know where to go).
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