A general suggestion at this point is to confirm you have the latest firware on your router and that you ARE wireless when trying to telnet the SB.
Another thought, when you changed the IP in system prefs/network to get onto the 169.254 range, did you renew the DHCP lease? Your mac may have thought it was still on a 192.168 range. Give that a whirl. If you can then telent in and give the SB a static address remember that you would need to change your mac back to the 192.168 range and again renew the DHCP lease.