Hi 2hype,
The PAP auth that you a configuring on the RADIUS server is for the user passwords with RADIUS messages, and not used for the authentication of RADIUS messages themselves.
The point of using RADIUS is two-fold: firstly you are leveraging your already existing user database and do not have to keep a separate one for each router. Also, it's presumed that the network between your router and RADIUS server is trusted, so the risk of sniffing passwords should be reduced. In any case, the user passwords will be encrypted within the over-all RADIUS message using the symmetric shared secret.
So using SSH and RADIUS is advised for security.