whether your ISP wants to use PAP or chap i don't know, that'll be you job to find out.
you can check these out though:
http://www.wellmodem.com.tw/support/...-howto-13.html <--About PAP
you may also find this to be usefull:
i believe the reason that the lan is working so well and not the 56K is that eth0 may be initialized on boot, where your PPP is not. i forget the exact command to bring it up, but it is something like /services/ppp up, but i will look further into that. (i am not on my home pc at the moment)