Actually, the KSU is passing on the DTMF tones as it should. Normal calls complete normally; *67 calls ring at the other end, but then when the party answers or the call gets transferred to voice mail, the KSU reports a busy signal.
Apparently the MUX is passing back something -- a particular voltage? -- to the KSU that the KSU thinks means "line busy". It's really odd that it happens only on *67 calls, and that *67 calls work just like regular calls until the other ends picks up.
I'm going to work from both ends -- ask the telco provider (XO) to check into the MUX's behavior, and look up specs on the Panasonic VB43060.