As the noise margin is reduced, so the error rate increases, until it gets to the point where the connection is unsustainable and the router loses sync. Before that happens you may experience erratic performance because so much data is having to be retransmitted as a result of the errors. I guess that it could be during this period that the ISP monitoring believes that the ADSL connection has dropped, and so drops the PPP connection.
This is only speculation on my part, as I don't really know.