169.254.x.x is usually referred to as the APIPA range (Automatic Private IP Address) and is considered a DHCP failover option on many, many devices which is why the N800 is saying "Link-Local" because it recognizes that the IP address fed to it from the DHCP server is from the APIPA range.
In other words, you've misconfigured your router to use an IP range used for when there is not a DHCP server present.
No one should run a local subnet on that range as it's super-easy for an attacker to get in on it and is usually a sign of a lazy network admin.
As already suggested, jump your DHCP scope to somewhere in the 192.168.x.x range, but do NOT use the Linksys - and many other routers - default range of 192.168.1.x.

Hosts files? It's a lot easier to run a fairly secure mini-DNS system on your local subnet that would make things a lot easier.