My workaround to fix the DNS was changed from the echo's above to simply:
cp /var/etc/ppp/resolv.conf.WAN-1 /var/etc/resolv.conf
However when the L2TP connection is updated, and Dynamic DNS needs to be updated, the DNS entries are messed up again, so I added an entry to the hosts file which will hopefully survive that:
echo "216.146.38.125 dlinkddns.com" >> /var/hosts
I also have tried extend the telnet timeout by starting a new telnet daemon on a different port (and with password of my choice) with:
telnetd -l /usr/sbin/login -u Alphanetworks:myownpassword -t 0 -p 22 -i br0 &
Then telnet in with telnet 192.168.0.1 22
(Default telnet is port 23. Port 22 is for ssh, but there is no sshd in the f/w.)