> http://www.opennet.me/base/cisco/radius.txt.html
> Там есть

Спасибо огромное, многие проблемы решил благодаря статье.
Но вот попробовал использовать следующий метод:
user    Auth-Type := Local, User-Password == "testing"
Результат Reject с логом:
WARNING: Found User-Password == "...".
WARNING: Are you sure you don't mean Cleartext-Password?
...........................................................
[pap] WARNING! No "known good" password found for the user.  Authentication may fail because of this.
++[pap] returns noop

<man rlm_pap> кое-что прояснил:
It  is important to understand the difference between the User-Password and Cleartext-Password attributes.  The Cleartext-Password attribute is the "known good" password for the user. Simply  supplying  the  Cleartext-Password  to  the server  will result in most authentication methods working.  The User-Password attribute is the password as typed in by the user on their private machine. The two are not the same, and should be treated very differently.

Получается что Cleartext-Password нужно использовать вместо User-Password.