A 169 is just a default IP when there is no DHCP server available or, for some reason, it is unable to obtain a DHCP lease. This would allow you to route to other systems on a network. APIPA is to thank for that.
You mention the DHCP service on the router is configured to only hand out 5 IP's. How many devices do you have on the network which have a current IP lease? The available DHCP pool may be the issue here - can you bump the available IP's to 10 to check?
If you open Services (run: 'services.msc'), is the DHCP client running?
I would suggest doing a repair on the nic next. There are a few ways to do it. If you run 'ncpa.cpl', you will pull up the network connections, you can right click the ethernet interface and choose 'repair'. You can also run a repair from command line as well as some other helpful features.
'netsh int ip reset c:\resetlog.txt' (filename can be whatever)
There is also a free Microsoft 'fix it' for the above - »support.microsoft.com/kb/299357
'netsh int winsock reset' is another recommendation I would have.
Following that, I would try giving the nic a static IP. If you need help with that just let us know.