PPP / Chat wows

[Paul Bryan]

> Jan  9 11:40:59 curtin chat[2430]: send (AT S7=45 S0=0 L1 V1 X4 &c1 E1
> Q0^M) 

Id say your problem is with the ^M. That's a carriage return. Did you perhaps 
create this script on a windows box? Unix end of line is just a line feed, 
whereas windows uses carriage return linefeed. 

Strip out the carriage return and try again:

$perl -p -e 's/\r//' < /etc/ppp/chat-blue_sky > /tmpfile
$mv /tmpfile /etc/ppp/chat-blue_sky

Cheers,
Paul.