Issue still present as of pppd version 2.4.5 and when Windows 7 machine VPN is used, there appears to be two solutions: 1. This old patch - http://us.generation-nt.com/bug-273333-ppp-mppe-pmtud-breakage-workaround-patch-help-165417731.html which I lack experience on how to implement.
2. Or as Alexander suggested using the ifconfig which I did.
For anyone having this problem here is my workaround ip-up script - http://danielsokolowski.blogspot.com/2013/04/mppecompress0-osize-too-small-have-1404.html

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