When I create the only rule disabling all input,
iptables -P INPUT DROP
I can not connect anything. So it looks like I should allow some incoming activity to get PPPoE working correctly. What rules should I add?
A good first rule is
This will allow any traffic in that is on or related to an outgoing connection.
Technically, PPPoE will be working correctly as the PPPoE packets will not be filtered by the firewall as they are below the IP layer (iptables sets up rules for IPv4 packets). However the IP packets coming out of PPP will be filtered, which is why you need the above rule.