OK a follow up for anyone else maybe hitting this page with similar problems. I have it working now. But I'm damned if I know why it didn't work before.
The server side is running on a Draytek 2830n single band router set up as dial in mode for PPTP. I upgrsded the firmware on this device to version 3.3.7_232201 as I saw some posts here and elsewhere saying newer firmware on the 2830n sorted some vpn issues.
I also upgraded firmware on the client side (a 2800vg) to version 2.8.2
In both cases the firmware upgrade alone didn't help - I still could not get a PPTP or Ipsec connection working on Lan-Lan. To test basic VPN functionality to each router I setup a dial in user to each from my laptop (running Ubuntu 12.04) and both connected flawlessly.
So working on the theory that the CHAP error pointed to issue with the username and/or password I changed this and lo and behold it worked immediately.... now I know that the username and passwords matched and I entered and re-entered them many many times. Password I used was made up purely of lower case letters and numbers (13 characters in all). New one is a mix of lower case letters numbers and symbols 11 characters in length. The username also changed but still all lower case letters.
So I still can't see why the changes made allowed for this to work but I'm just glad it did.... I also managed to get this working with DDNS at both ends too. On the 2800vg I added the DDNS name of the server in the Server IP/Host Name for VPN box in dial-out settings section. And on the 2830n I added the DDNS name of the client router in the Peer ID box under the Specify Remote VPN Gateway section in Dial-in settings.
Glad I got it working, hope the DDNS bit helps someone else (as there is some conflicting information about this elsewhere on the net). Just wish I knew why a different username/password combo worked this time when the much simpler one didn't.
Tom
