We have a router/modem 2wire (with DHCP disabled) which we are just using as a modem now, wired to our Airport (with DHCP enabled). We have 5 other devices connected. One of the Macbooks is choosing an address in the 169.254.x.x range. The Airport is set to connect using DHCP and router mode: Off (bridge mode).
The Network utility says:
Wi-Fi has the self-assigned IP address 169.254.104.148 and will not be able to connect to the Internet.
In the AirPort utility it says the IP address and LAN IP address of the airport is 169.254.213.128.
The wifi attempts to connect but never stops trying. The wifi bars just keep lighting up. In the network utility, it says "Self-Assigned IP"