I had similar problems with that 8bit problem with my deb 2.1 with diald... I fixed it with /ppp/options, the setting crtscts, or xonxoff I believe.. try settings these on/off see what it gives you... I'm sorry I cant remember more about it. (if I remember correctly its like local echo, if you have ever used terminal to connect 2 computers and you get 2 of everything on the screen, something similar is happening to your connection...)
hope this gives you some ideas / help
Ken
