If you're doing PAT on this 501 then you should be able to at least build a tunnel, but then you probably won't be able to pass traffic. PAT and IPSec don't work well together. If you have a spare external IP address (doubtful since you're doing DHCP), then you could set up a static for your internal VPN client machine and then it should work fine. Alternatively, if the Nortel supports some sort of IPSec encapsulation into a TCP or UDP packet, then if you enable that it all should work even with a PAT config on the 501.
What errors do you see on the 501 if you enable syslogging? That may give us a better indication of what's going on.