My issue is basically routing then. Wierdly, when I go to "Diagnostics: Routing Tables" I have nothing saying that 192.168.16.0/24 (on pfsense A) should go throuh interface ENC0 (IPSec to pfsense B). As per the default gw of pfsense I have - default 10.0.0.138 UGS 0 682017 1500 fxp0 - which is the IP Address of the ADSL Router.
Is there any issue with this setup?
It's not routing. As I said before, there is no routing involved with IPsec, as far as the routing table is concerned. It's the SPD that encapsulates matching traffic and sends it to the destination.
What do you mean by " Is the default gateway of every system involved pfsense?" . From what I get the existing DHCP server gives the default gw as the pfsense LAN IP address.
If you're using pfsense for DHCP for everything and don't have anything statically addressed then you don't have to worry about what the gateways are set to.
Since the traffic is getting logged at the source end, what about at the destination end if you enable logging there?