Hello ,
If you have ON at both the ends, it brings up the etherchannel unconditionally.. this is basically the manual etherchannel mode and not PAGP or LACP.. with LACP, there are only 2 modes, active or passive... similartly with PAGP there are only 2 modes, Auto or Desirable... You can have more info on these modes of PAGP and LACP on the URL below:
http://cisco.com/en/US/products/hw/switches/ps628/products_configuration_guide_chapter09186a00801cde63.html#1028480
It is not advisible to use ON. You can either use the PAGP or LACP protocols to build up the etherchannel.. The difference being PAGP is a cisco proprietary protocol and LACP is open standard. Another advantage of LACP is that it can be used between two different 3750 switches on a stack, which means you can have 2 seperate lins on different switches on a stack and still enable etherchannel between them...
Hope this helps.. all the best.. rate replies if found useful..
Raj
