Firstly, where does 169.254.0.0 come from? I never asked it to be there!!
This is the address range that windows machines will use when they can not find a dhcp server. Therefore, you'll need to leave the ifcfg-eth0 files as is, if you want to be able to access windows machines from linux and visa versa (or else set static IPs, or make sure that windows machines are connecting to the dhcp server).
Connecting to Windows machines is not the purpose of the Zeroconf settings. Zeroconf is a mechanism for machines to automatically discover locally available network resources. It's the basis of Apple's Rendezvous.
A quick google for "zeroconf" will return a wealth of information to clarify your understanding:
http://www.zeroconf.org/ http://www.zeroconf.org/Rendezvous/ http://zeroconf.sourceforge.net/
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