Problem using external interactive voice response system (IVR) using trixbox ce 2.4.2

Are you using an at&t analog phone connected to the pap2?
The pap2 and other linksys's work best with panasonic phones only. But you can try changing some settings.
In the pap2 web interface, go to Line 1. You will see a dtmf setting set to auto. Change it to AVT. Do the same for line 2. See if it helps.
Otherwise, change it back to auto, and in FreePBX, go to that extension, change dtmfmode from rfc2833 to inband. Then in the trunks page, look for your voip trunk and remove the line (if any) dtmfmode="whatever" (it might say inband or rfc2833).

If this didn't help, please tell me:
A. Who'se the provider
B. What phone manufacture are you using?

I am using a good quality Meridian Nortel phone on the ATA.

Ok. I'm not too familiar with the phone and provider but on my at&t handsets I need to do the following.
Remove any dtmf setting in all your trunks that make outgoing calls. Let the outgoing call get its dtmf mode from the originating extension.

On the extension using the pap2, make sure on the web interface you have set dtmf method to auto. Then, in FreePBX, for the extension using the pap2, switch the dtmfmode there to inband. This setup should work. Please test. Call your cell phone and just dial digits to test, and test it on the IVRs.
Don't make yourself crazy with dtmf. I always make myself crazy with it and I'm never happy. So just try the way I told you, and never play with it again and you should be fine.
I had the same issue as you with IVRs with Vitelity. I guess your provider doesn't work well with RFC2833.
See if my method works and post back here.

Thanks