This is where Automatic Private IP Addressing (APIPA) steps in and tries to save the day, it continues to chooses a random IP address within the range 169.254.x.x / 255.255.0.0 until it finds a unique IP that doesn't conflict with other computers IP. When a computer is configured with APIPA, then it can only connect to other computers that are also configured with APIPA.
Note a computer only attempts to use APIPA when configured to use a DHCP server and it doesn't respond (timeouts). When assigned an IP from APIPA, then the computer will continue to search for a DHCP server, by sending out a DHCP request every 5 minutes.
To configure the use of APIPA in Windows 98/Me:
To configure the use of APIPA in Windows 2000/XP:[HKEY_LOCAL_MACHINE \System \CurrentControlSet \Services \VxD \DHCP]
IPAutoconfigurationEnabled = 1 (Default = 1)
Note to see if using APIPA then start WinIpCfg.exe and check that the IP address begins with 169.254.x.x
Related Faster boot times by using static IP instead of DHCP[HKEY_LOCAL_MACHINE \SYSTEM \CurrentControlSet \Services \Tcpip \Parameters]
IPAutoconfigurationEnabled = 1 (Default = 1)
Note to see if using APIPA then start a command prompt (cmd) and run this command "ipconfig /all", and check that the IP address begins with 169.254.x.x
More Info MS KB188480
More Info MS KB220874
More Info MS KB255836
More Info MS KB244268
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