What the Engineer said is basically correct, BT Openreach engineers don't usually test with any ISP login details simply because they cannot be sure the details themselves are correct, so a PPP failure with ISP details doesn't necessarily prove anything during the site visit.
As already stated in this thread - if the bt_test@startup_domain username fails then the fault is either with the BT network or with the hardware. You've already proved that the issue is not hardware related via the PPPoE dialer, which is why BT are on the case.
I wouldn't recommend flashing the firmware on the modem as the device does remain the property of BT , and in this instance is unlikely to do anything to help resolve the fault you're experiencing anyway.
I've located your Fault ticket, and will keep an eye on the case for you.