I installed Openwrt on my Xiaomi router 3G last night and I was able to configure network interface to connect via PPPoE however there has been lot of random disconnection and connects back automatically.
But now its been 3 hours and still there is no connection.
I noticed that in/etc/config/network there is no entry for WAN however it is present when checked via GUI
Are you sure? Could you try changing anything in the WAN settings and see if it will show up in the config file, and if the changes will retain in the GUI after restart for example?
Could you confirm that the MTU is as required by your ISP?
What I am worried is the whole WAN part is missing in config file, I rebooted the router and checked both config and GUI just to confirm still missing.
There is no such requirement for MTU(have I added this somewhere?), ISP has only PPPoE.
This is totally irrelevant from the PPPoE disconnects. You may accept or ignore the NameServers advertised by the ISP. In both cases you can add your own NS (in the second case it is kind of necessary). This works for the router itself and the hosts that use dnsmasq to resolve. If you advertise the pihole to your clients as NS, then they will query the pihole, but pihole also needs some upstream NS to ask.