Currently on my network I have Windows Server 2012 setup with DNS, DHCP, and Squid Proxy. Most of the time when my clients connect to the network the DHCP server won't hand them an IP address, leaving them with an auto-configured address 169.254.x.x . What am I doing wrong? Google searching shows that auto-configuration only happens when the device can't find a DHCP server, but the server has a static IP already from the router.
You may be out of DHCP address space and some of the clients will be unable to be assigned an address. How many terminals/PCs do you have and what class of IP addresses (example: 192.168.1.0) ? Also, make sure you set a proper lease value, so IPs unused for a long time are un-allocated.