vpn is for connecting remote machines over a public network , usually internet. If you are trying to establish vpn over LAN, then there are number of things that will hinder the process, like testing whether the connection is established will be a clumsy process rather than straight forward ping method. You don't have to worry about the NAT/masquerading message. I followed the steps in the following document http://megaz.arbuz.com/2005/01/28/linux-vpn-guide
and was sucessful in establishing a vpn with pre-shared key method. pre-shared key is not the best way to establish a vpn, a better method would be using certificate based vpn.