Basically that happens when your computer can't gain access to the gateway(your routers door to the internet) so it locks with a internal IP, AKA 169 IP, which ofcourse is owned by your OS, which is Microsoft. 169 are the bane of Technical support reps, and can be caused by so many things.
From the rest of the problem you have described, when your router reboots, it keeps a physical or "local" connection, but doesn't allow internet access during the time it reboots. If its longer then the timeout period for your computer, it will basically give up and lock with the 169. One way around this is since your have DHCP reservation to enable your gamefuel (or gaming rules) just turn off the DHCP on your local area connection and assign a static IP. Be sure to look on your routers status page and get your DNS server and set it as that, otherwise the DGL will have to relay your DNS query..wow..this just got complicated fast. Let me know if I lost you and I can break it down a bit better.