Echo is commonly encountered on PSTN when analog lines are involved in the conversation path. Patton SmartNodes have an integrated echo canceller for that purpose. Because it works adaptively, only the echo that really exists is cancelled. The best place to cancel an echo is at the VoIP gateway between the IP network and the PSTN, or the PBX where it occurs.  Therefore, it is generally recommended to switch it on (which is the default setting). There are some conditions remaining where the echo canceller can’t recognize an echo signal as such, and thus can’t cancel it. In these conditions, the echo must be troubleshooted in the PSTN or the PBX connected to the VoIP network.

Here are some options on the web GUI you can exercise to reduce or elimitate echo:

Under -> Telephony / PSTN Profiles / Profile default
Echo Canceler is enabled

Hybrid Loss 9
Non-Linear Processor Mode [Checked] -> Adaptive
Output gain (Specifies the input gain from the PSTN) = 0
Input gain (Specifies the output gain towards the PSTN) = 0

(Output and Input gains control the volume of the callee or caller)

Under -> Telephony / VoIP Profiles / Profile default -> Voice
Silence Suppression set to "yes" on all Codecs

Under -> Telephony / VoIP Profiles / Profile default -> Dejitter Buffer
Mode = Adaptive
Voice = 20 milliseconds

For the background noise, that's a result of microphone sensitivity on the phone set. Some phones have very sensitive microphones that pick up a lot of background noise/are not directional enough to pickup the speakers voice and instead pick up surrounding noises. Adjusting the gain on the phones (if possible) is often helpful along with adjusting gain on the Patton. Adjusting both Patton gain settings and phone gain settings dials it in can improves quality.

I would increase input-gain and decrease output-gain, if the complaint when you changed both to -5 was that the called SIP phones could not hear well. Reducing the output gain would reduce voice power sent out to the PSTN caller and might help echo. If the called SIP phones hear their own voices echo back, then the echo is coming from the PSTN caller side (4-wire to 2-wire voice reflection), so reducing outbound gain might help that. Likewise reducing the gain on the SIP phone itself will help this.

Other factors are outside the Patton, such as network delay or out-of-order packets. A extended PING across the network can help identify this if ping times are high. Network bandwidth usage is the other major culprit, and a router traffic grapher (MRTG) can spot this, for example. If there is a lot of data traffic it could interfere with voice packets if QOS is not set up. Depending on your software version, QOS can be set up to prioritize voice packets over data. Run the command show version and let me know your version. Finally I would recommend that you always have the latest firmware on your Smartnode device.

Here is a link for more detailed description of echo appearing on the SmartNode. 

http://www.patton.com/technotes/Smartnode%20Echo.pdf