A 169.254 address is a special self generated IP.
The block 169.254.0.0/16 is reserved for this purpose, with the exception of the first and the last /24 subnets in the range. If a host on an IEEE 802 (ethernet) network cannot obtain a network address via DHCP, an address from 169.254.1.0 to 169.254.254.255 may be assigned pseudorandomly. The standard prescribes that address collisions must be handled gracefully.
See https://en.wikipedia.org/wiki/Private_network
What is happening is not the wrong dhcp server but no dhcp server at all.. no link is possible.
What should I do?
what model is the extreme?
What I would recommend is a factory reset.. and totally new configuration.
Please use the DHCP in the AE not from main router if you are bridged.
See here. https://discussions.apple.com/thread/5981989?answerId=25135547022#25135547022&ac_cid=tw123456#
Also I recommend that you use all short names, no spaces and pure alphanumeric.
To find out if you have too much interference or too little signal do a wireless survey around your home.
Just google for it.. eg. http://accessagility.com/products/wifi-survey.html
There are a whole mix of free and paid for apps that will work on laptops, iphone/ipad or other brands.. whatever you have available.
Find out how much signal is getting into your home and on what channels.. basically to win the wifi war you need to
1. Move to 5ghz.
2. Exceed the power output of every other wireless signal coming into your home by 6db at least.
3. Use the best possible channel where the interference is least.
Apple wireless routers are NOT high power. They are average.. and it might just be a situation where you cannot get acceptable connections at average.
If the AE is old it can also be working poorly.
You do need to replace them around every 3years.