It was a lot of trial and error so lets hope it stays working.
For others benefits, this is what I did:
In PPTP client I changed the MMPE Enc to: mppe required,no40,no56,stateless (as this is what the Wiki said in case you are connecting to a Windows PPTP server)
In Setup->Advanced Routing I created a static routing:
Routename: vpntraffic (choose anything here)
Metric: 0
Dest LAN NET/Subnet: 0.0.0.0/0.0.0.0
Gateway: 214.121.85.12 (my VPN PPTP Server IP address)
I dont know what the above does, but what it did do is stopped the default gateway route settings from being added (which was going directly to the ISP and not the VPN...i.e, my problem).
Then I had to go and add a route command:
route add -host 214.121.85.12 gw 87.201.170.1 dev vlan1
I actually added this later on to Administration->Commands and saved it as a Firewall command (as saving it as a Startup did not really work..maybe it was called too early on from there)
Now route table looks like this.
~# route
Kernel IP routing table
Destination Gateway Genmask Flags Metric Ref Use Iface
216.121.85.12 87.201.170.1 255.255.255.255 UGH 0 0 0 vlan1
192.168.1.200 * 255.255.255.255 UH 0 0 0 ppp0
192.168.1.0 * 255.255.255.0 U 0 0 0 br0
87.201.170.0 * 255.255.255.0 U 0 0 0 vlan1
169.254.0.0 * 255.255.0.0 U 0 0 0 br0
127.0.0.0 * 255.0.0.0 U 0 0 0 lo
default * 0.0.0.0 U 0 0 0 ppp0
Everything worked! Almost..the next problem was the although all traffic went over the VPN, I got some DNS problems. Not all addresses were resolving properly. Google.com worked, but yahoo.com did not, and so on. Also it became sporadic.
I wasted a lot of time, playing around with DNSmasq, etc etc.
Finally the thing that did the trick was to put a public DNS server from opendns.com in Setup->Basic Setup under the Local DNS.
Reboot and it worked!
I guess I am using a public DNS now, but I guess I can live with that.
Anybody have any ideas/comments or even explanations on why what I did worked, it would help us in the future.