it should support 255.255.0.0 subnet. it seems that u have network setup trouble.
please check routing table windows side: "route print", and u may want to try traceroute : "traceroute 172.16.2.1"
and what about logs on linux side? check /var/log/messages and openvpn-status.log
u may also want to add an iptables log rule to see if packets comes from windows box and turn back from local network.
iptables -I FORWARD -i tun0 -d 172.16.0.0/16 -j LOG --log-prefix " packets from windows to local net:"
iptables -I FORWARD -o tun0 -s 172.16.0.0/16 -j LOG --log-prefix " packets to windows from local net:"
u should see those packets in /var/log/messages or /var/log/syslog files depending on your linux distro..
and another point is the local computers that have 172.16.x.x ip addresses, must use 172.16.7.254 (linux) as gateway. if not, u should do ip MASQUERADE on linux box.