I thought this was an interesting question so I dug up an "old" Rotary dial phone and hooked it up to one of our VG248's. Incoming calls work fine but you can't make an Outgoing call :( The Rotary dial phone will not break dialtone (which is probably expected).
Hope this helps!
PS. We don't use ATA's but I'm guessing the results would be similar.
I don't have a rotary phone to test but have you tried changing the dial-type to pulse under the voice-port command area?
On what device are you seeing the dial-type? I don't see it on the VG248 or in Call Manager. I think that this is for other equipment that we do not have(Cisco MC3810 and Cisco 3600 series routers, etc.).