It Appears that your eth0 is having the ip 169.254.5.172 then you have to specify the subnet in that range i guess i.e
169.254.5.0/24. If these changes do not straddles with your strategy may be this change would help:
#
# Default LTSP dhcpd.conf config file.
#
authoritative;
subnet 169.254.5.0 netmask 255.255.255.0 {
range 169.254.5.2 169.254.5.171;
option domain-name "example.com";
option domain-name-servers 192.168.0.1;
option broadcast-address 192.168.0.255;
option routers 192.168.0.1; # Caution: you have to see this whats now going to be your default route
# next-server 192.168.0.1;
# get-lease-hostnames true;
option subnet-mask 255.255.255.0;
option root-path "/opt/ltsp/i386";
if substring( option vendor-class-identifier, 0, 9 ) = "PXEClient" {
filename "/ltsp/i386/pxelinux.0";
} else {
filename "/ltsp/i386/nbi.img";
}
}
try starting your dhcpd on eth0 with this file again and post the error, if any