I was getting a weird problem where one machine could connect to an IPsec/L2TP VPN where another one was giving messages like
MPPE required but kernel has no support
on its console at the same time as the server was issuing messages such as
LCP terminated by peer (MPPE required but not available)
There wasn’t any obvious reason for the machines to behave differently (though one was Intel, one PowerPC, and the PowerPC one—which was where the VPN didn’t work—had been upgraded to Leopard with a VPN connection already set-up, though not the connection I was having this problem with).
Anyway, the solution is simple; edit the file /Library/Preferences/SystemConfiguration/preferences.plist. You need to look through the NetworkServices dictionary until you find the VPN connection you want to fix, then go into the PPP dictionary and change the CCPMPPEnnEnabled keys to 0.
This fixed it for me.