The c1600-y-mz.122-28.bin image is an IP only image and you certainly can not use it to make VPN connections. If you were to upgrade the image to an IPSEC (crypto) image you should be able to use it for making VPN connections.
So to your question about is this router capable of doing VPN the answer would be yes. But to do it would require software upgrade (and potentially hardware upgrade - depending on the amount of memory and flash required for the more capable image).
any ideas where I can find a more suitable image? please please ...dont refer me to the feature nav. I hate that darn thing! it takes me hours to find what I be looking for and its not user friendly at all. :(
Cisco 1600 series routers connect small offices with Ethernet LANs to the Internet and to company intranets using several wide-area-network (WAN) technologies: Integrated Service Digital Network (ISDN), asynchronous serial, and synchronous serial such as Frame Relay, leased lines, Switched 56, Switched Multimegabit Data Service (SMDS), and X.25.
Cisco 1601: one Ethernet, one serial, one WAN interface card slot.
I don't think the WAN interface card slot support ADSL-WIC as mentioned in the supported type of lines above.
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