I played around with the resisitor that goes into the chip. I end up with a 5.9k resistor in series with a .01uF cap going to the isolation transformer(got from a winmodem). I grounded the other leg.

. .01uf 5.9k
--8||8---||--///----> MT8870
8||8
8||8
--8||8---|
|
GND

I am no electronics genuis but this works.

I ran pin 17 stD into Pin 6 of the 2051 (int0). then the four data line got into
P2.3 thru P2.6.

Here is the code on int 0:

INTERRUPT(_IE0_) int_handler() //DTMF INCOMING
{
IE=0;
v=P1;
v=v<<2;
v=v>>4;
if(v>0 && v<10){
printf(":%cr",'0'+v);
}
if(v==10){
printf(":0r");
}
if(v==11){
printf(":*r");
}
if(v==12){
printf(":#r");
}
if(v==13){
printf(":Ar");
}
if(v==14){
printf(":Br");
}
if(v==15){
printf(":Cr");
}
if(v==0){
printf(":Dr");
}
IE=0x85;
}