That circuit is drawing power from the phone..2.8VDC is enough since this is the maximum the phone can supply. Please remove that zener Diode that was left when I was experimenting powering it with external power supply.
I think you have the problem with the HEX you used for the DLR-3P part since LED1 will light steadily. You used the wrong HEX! this is the link for the 8 Mhz version..http://www.atrox.at/datacable/dlr3/dlr2.hex
LED2 will continously blink meaning it is sending SMS.