Did you see this in your debug output:

[mschap] No Cleartext-Password configured.  Cannot create LM-Password.

[mschap] No Cleartext-Password configured.  Cannot create NT-Password.

[mschap] Creating challenge hash with username: netengtest

[mschap] Told to do MS-CHAPv2 for netengtest with NT-Password

[mschap] FAILED: No NT/LM-Password.  Cannot perform authentication.