This is a trait of TCPIP and DHCP. When a DHCP request is sent out and nothing is returned it will self assign a 169 IP address so that the computer can continue to function.

I would get off of WEP and see if that resolves your problem. It should work with WEP but there are a few posts around here that suggest issues. Not sure how much I believe them but it is worth a shot. Besides, WEP is really not secure and takes seconds to crack.

The last ditch effort would be a system reload. It could simply be that something is corrupt and not playing well with others. It would be the first time that I have seen something like this and chasing a ghost is hard to do. Just be sure to backup your data before going this route.