1. Does your password have odd (non-ascii) characters in it? That should NOT matter for MS-CHAP since it's explicitly unicode aware

MS-CHAP is unicode aware, but FreeRADIUS' implementation is not. It definitely borks on non-ASCII characters in passwords. (I submitted a patch some time ago to fix this, check the archives). (I've not been following this thread, so I don't know if pertinent or not.) Josh.