A. Microsoft have tried to make Windows 2000 as easy to setup on a small network as possible and by default and machines installed are setup to use DHCP. On a very small network you may not have a DHCP server and rather than the machines failing to initialize TCP/IP Microsoft has added code so that the machines will use an address not in use on the local network in the class B address range 169.254.x.x. This IP address range is reserved for internal use only and so should not clash with any "real" IP addresses on your network. The MacOS uses the same address range for its DHCP clients when a DHCP server cannot be contacted as does Windows 98 Second Edition.
This DHCP address allocation uses conflict detection via a NetBIOS naming broadcast over DHCP so each machine gets an IP address from the 169.254.x.x range which is not in use. The actual address initially chosed in random.
If any of your machines have a 169.254.x.x address it just means they could not contact a DHCP server so check your network connectivity.
This automatic IP addressing is known as Automatic Private IP Addressing (APIPA).
