  The two-orbital Kondo model with classical Jahn-Teller phonons is studied
using Monte Carlo techniques. The observed phase diagram is rich, and includes
a novel regime of phase separation induced by the orbital degrees of freedom.
Experimental consequences of our results are discussed. In addition, the
optical conductivity $\sigma(\omega)$ of the model is presented. It is shown to
have several similarities with experimental measurements for manganites.
