This conversion is actually a side effect to the way DTMF is handled. Any time DTMF audio is desired on the receiving side, the out of band signaling is used to (re-)generate the tone. When pulse dialing is used, your ATA generates the same signal. The echo test server generates the DTMF tone to send back to you when it receives a dialed digit. The echo test server does not care how the digit was actually dialed, it simply assumes that when it receives a dialed digit, you want the DTMF tones back in return. If you had a device on your end that accepted MF signalling, your MF digits would actually come back as DTMF from the echo test.
It's rare, but it also works the other way. Remember, the network only sees digits. If you have an FXS port set to dial using pulse instead of tone, any digit you dial regardless of method (tone, pulse, digital keypad, MF, etc) would be converted to dial pulses.
Watch the ethernet port lights the next time you take your VoIP device off hook. There should be no activity on the ethernet side when you receive a dial tone. If early dial is disabled, you won't see any activity until you are finished dialing.
