The reason XP boxes can play nice together is this: by default, Windows XP will attempt to use DHCP to obtain TCP/IP information. If a DHCP server can not be contacted, it resorts to what Microsoft calls Automatic Private IP Addressing (APIPA). This will assign an IP address in 169.254.y.z range. If a second XP box is brought up, it will go through the same process, plus make sure that it does not duplicate any other 169.254.y.z addresses already in use. See Microsoft KB article 314067 for some additional information, or search XP help for "automatic IP"

Of course 169.254.y.z is non-standard for what most people will use (192.168.y.z), which didn't help you any. As the other posts said, you are better off manually setting addresses, and make sure every machine has "File and Print Sharing" enabled.