This is now fixed.
Apparently, 1st, the 7961 is more sensitive to the xml configuration than the 7960, 2nd issue is the firmware used plays a key role in making the 7961 work.
1st issue. As Azrobert says, the devices needs to be "not registered", but it looks like the outbound proxy/proxy port cannot be empty (supposedly, its ok on Pi and asterisk servers and ok on the 7960). The 7961 does not register but it does shows as a client (as Azrobert pointed out).
<outboundProxy></outboundProxy>
<outboundProxyPort></outboundProxyPort>
<registerWithProxy>false</registerWithProxy>
2nd issue. Use firmware 8.35, i tried firmwares 8.0 to 9.4 and can only get 8.35 to work. Other versions may work but I just don't know how to make it work.
Lots of frustrating days but learned a lot. Thanks Azrobert for the lesson in dialing out and registration and taking the time to answer questions.