Hi,
Did you try without the spaces, ie #254#1#1?

If you created a loopback you should be able to see what you send - as long as you send normal ASCII text like you initially did. When you type 254 and press send you should see 254 being "looped back" but when type #254 and press send you should NOT expect to see 254 being looped back because now a single byte with the value of 254 gets sent and 254 is non standard ASCII code so you'll get a weird character on the screen.

Try this with your loopback:
1) Type ABCD then press send (or enter).
2) Type #65#66#67#68 then press send (or enter).

What do you see? Now Google for ASCII chart or look in the back of the PBP manual, what does 65 correspond to?

If skipping the spaces doesn't work then try modifying your PIC code so that, instead of 254, it waits for 65 or "A". By now you'd know that they are exactly the same thing. The value 65 is the ASCII code for the letter A. When you type A and press send the PC sends one byte out, that byte contains the value 65 of which when looped back to the PC gets displayed as A because that what's the value 65 represents.

/Henrik.