Hi,

I said:
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Just connect 8880 to the line (single input or differential input configuration) directly to the line. It will only out put DTMF to the line or detect the DTMF coming from the line in transceive mode. It will only detect tones in the line when in call progress mode.
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In single input configuration "better" don't connect the 8880 directly to the line. Instead use the transformer circuit side for this configuration to receive DTMF. This way you will not have to connect one leg of the line to ground of your circuit, if you want to keep the circuit isolated.

Hope you get my point.

Babar