Thanks Alan, Now it is working as I wanted. It feels good when things works 
after trying trying and trying :)

> Date: Fri, 6 Jul 2012 11:36:18 -0400
> From: al...@deployingradius.com
> To: freeradius-users@lists.freeradius.org
> Subject: Re: Active Directory Authentication problem with ppp
> 
> madal 30 wrote:
> > I am always getting this error, when I am trying to authenticate user
> > against Active Directory 
> 
>   No, you're not.
> 
> > [mschap] No Cleartext-Password configured.  Cannot create LM-Password.
> > [mschap] No Cleartext-Password configured.  Cannot create NT-Password.
> > [mschap] Creating challenge hash with username: harry
> > [mschap] Told to do MS-CHAPv2 for harry with NT-Password
> > [mschap] FAILED: No NT/LM-Password.  Cannot perform authentication.
> > [mschap] FAILED: MS-CHAP2-Response is incorrect
> 
>   You didn't configure the mschap module to use ntlm_auth.
> 
> > Pacakages I have installed.
> 
>   That is useless information.
> 
> > My /etc/pptp/option.pptpd is :
> 
>   As is that.
> 
> > And in /etc/radd/modules/mschap i have following 
> > mschap {
> >          use_mppe = yes
> >          require_encryption =yes
> >         require_strong = yes
> >        #with_ntdomain_hack = yes
> > ntlm_auth = "/usr/bin/ntlm_auth --request-nt-key
> > --username=%{Stripped-User-Name:-%{User-Name:-none}}
> > --challenge=%{mschap:Challenge:-00} --nt-response=%{mschap:NT-Response:-00}"
> > }
> 
>   Well, the server isn't using that configuration.  Go read the debug
> output to figure out why.
> 
>   Odds are you have TWO instances of the mschap module defined.  Go fix
> that.
> 
>   Alan DeKok.
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