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Is there a way to configure the PPTP server under Ubuntu 10.04 to allow users to log in with their username/password from the local machine (the Ubuntu server, that is, not where they are connecting from)? I don't want to have to add a new username to /etc/ppp/chap-secrets every time I create a user, nor do I particularly want to store passwords in plain text like that.

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PPTP encryption is fundamentally broken. Unless it is used briefly and casually, OR you're forced to use it for whatever reason, I'd think about looking at other solutions. (see sans.org/security-resources/malwarefaq/pptp-vpn.php) –  Avery Payne May 12 at 20:34
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It's not possible to store them crypted, because pptpd does CHAP which is a challenge response procedure. Your server needs your password in cleartext to do it.

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The option is called "login":

Use the system password database for authenticating the peer using PAP, and record the user in the system wtmp file. Note that the peer must have an entry in the /etc/ppp/pap-secrets file as well as the system password database to be allowed access.

Now you would need require-pap since users would have to send theirs passwords unencrypted but that's starting smell as PBP (Pretty Bad Privacy), isn't it? Also, it is PBP even with MPPE.

So, concluding, that was bad idea.

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