When using pppoeclients aswell as pppoe server in a domU the username (as far as i can see from the log) is getting damaged (i guess it is affecting the password aswell 
. The only thing working 100% is PAP. chap works sometimes.
you are connecing with outside pppoe client to host and in logs you see crippled username, or you are connecting from guest?
outside ppoe client is connecting to my pppoe server inside domU. But we are having troubles connecting from inside to other pppoe servers outside aswell (no fails but it sometimes takes up to a minute to connect?!).
If i am running pppoeclient and Serv in 2 DomUs with a bridge between them i get the same crippled usernames (resulting in failed auths).
what we didnt test: client + serv in same VM.
Our testsetup is offline so i guess until next setup I wont be able to test this .. Sorry