You know, this could also be a network issue. MagicJack is VoIP based. There are different ways that DTMF signalling is transported over IP. RFC2833 is the typical standard for DTMF over RTP (Real Time Protocol). But, you can also send DTMF inband. If there is a mismatch between the caller and the far end, this can cause the DTMF to not get through to the other side. I've found that typically, DTMF is received at the user's device end, filtered out of the audio, and regenerated by the terminating device.
But, I really think the loop current is your issue, like the others have explained above.
