even if everything is set up properly you can still get limited or no connectivity which has the resultant Ip address of 169. That indicates that you wep key or encryption key is wrong
Does it say the network you are trying to connect to is encrypted? If so you will need the pass phrase in order to connect to it. If it isn't encrypted then you don't need a pass phrase. But what you are describing is exactly what happens if you try to connect to an encrypted wireless network without the pass phrase.
Clear all the listed networks from the preferred networks list. And also go into the network preferences and make sure the option for infrastructure mode is not checked. (in the menu on the left side when you view the available networks.)
There aren't any networks in the preferred networks list, and if the infrastructrue mode is the one in properties > advanced, it's not checked; the 'any available network' option is checked.