I applaud your efforts to get the two config/connection methods to work together. Just want to point out that once you have an /etc/resolv.conf with DNS entries, when you connect your connection is not dynamically allocated. Instead pppd uses the addresses you gave it. No problem if you always use the same DNS servers.
If you manually edit your ppp scripts to create dynamic DNS server connection, then you just need to put 'usepeerdns' in your /ettc/ppp/options file and remove /etc/resolv.conf. When you connect, pppd will generate the /etc/ppp/resolv.conf with the currently allocated addresses. Many ISP's will time you out if your connection is inactive for awhile and your DNS address becomes stale. That's why there are lines in /etc/ppp/ip-up that will 'ping' your connection every few minutes -to keep the DNS addresses 'alive'.
The stuff in ip-down is just to clean up after the connection is down so that you start fresh next time, with truly dynamic DNS allocation. I wrote ISPSETUP when I was using a net-by-call dialup connection and never knew what my DNS addresses would be.
If your using ppp-on and ppp-off just so that you can control ppp from the command line, it seems better to use the command-line options for kppp as mentioned above, after doing the configuration with kppp.