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What RADIUS Server are you using? We expeienced this problem until we replaced Steel-Belted RADIUS with Microsoft's IAS. Somehow there is a hook into AD from IAS to read passwords in clear text allowing CHAP to work. If you have a NT Domain, there is...
I have found this issue on both win2k and XP when "Enable transparent tunneling" is enabled with certain ISP's (e.g. Time Warner and Optimum On-Line). When we uncheck this, Outlook seems to work fine
