Did you see this in your debug output:

[mschap] No Cleartext-Password configured.  Cannot create LM-Password.
[mschap] No Cleartext-Password configured.  Cannot create NT-Password.
[mschap] Creating challenge hash with username: netengtest
[mschap] Told to do MS-CHAPv2 for netengtest with NT-Password
[mschap] FAILED: No NT/LM-Password.  Cannot perform authentication.

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