I do not get the mppe option in kernel config until I patch my kernel. However, the patch I found on planet mirror (for 2.6.0test kernel) is incompatible with ppp-2.4.2-r2, either with the stdopt-mppe-mppc-0.82.patch applied or reverted back.
I have found kernel_ppp_mppe-0.0.4-src.tgz for RedHat. Attaching merged patch.
Created attachment 36623 [details, diff] patch to add mppe support
Please submit this patch upstream if you want to see it in the kernel. At first glance, there are a number of minor things that need to be fixed (and some major ones, like the licensing) before it can make it into the kernel tree. Please submit it to the proper people, as Documentation/SubmittingPatches in the kernel tree details, I will not accept it into the gentoo kernel until it is in the mainline kernel.org tree.