You can use DHCP with Windows 9x/ME clients but you might have more user/client frustration (and increased support calls) with the "inability to connect to the LAN" because of problems releasing and renewing IP addresses.
I have no idea why Win 9x inconsistently causes IP address leases to persistently stick while on other occassions it works properly, but in my opinon, MS hasn't fully acknowledged or documented procedures to consistenly make Win 9x work properly with DHCP. If you have many Win 9x clients, static IP addresses are probably not practical and create more problems with moves, relocations of PC's from one area to another (inter-departmental, inter-site, etc.)
Here's some recognition of the problem by Microsoft:
http://support.microsoft.com/default.aspx?scid=kb;en-us;Q224175
Win 9x/ME clients doesn't always reliably release and renew IP addresses from DHCP servers like they should, even when done manually (which isn't mentioned by Microsoft) through the winipcfg /release and then winipcfg /renew, but there are other more extreme, drastic ways to 'force' it when manual release/renewals and rebooting don't work. For example, by temporarily changing anything in the network settings (step 1, adding NetBEUI protocol, then rebooting; step 2, release and renew the IP address manually on the client after the reboot (check the IP address with winipcfg /all) and then revert the network protocol configurations and settings to the settings as they were before step 1- remove NetBEUI; step 3, reboot and verify the correct IP address).
The two primary problems with Win 9x/ME when using 2000 Servers is that you need to enable LM and NTLM capabilites on your 2000 DC Group policy [this decreases security as opposed to using the pure NTLM2 authenication with Windows 2000/XP]. The second problem is that Win 9x/3.x requires reboots for all changes to the IP addressing, IP lease release/renewals and then confirmation upon reboot.
Since you have a 2000 DC, you should also install the Win9x Directory Services client found on the 2000 Server CD under \CLIENTS\WIN9X.
Here's more, older info on MS DHCP for Win95 and NT3.x/4. Please note, the use of a WINS server may improve the ability for 2000 Servers to communicate with MS OS's prior to Windows 2000/XP, but may have no relation to the capability or reliability of Win9x to release and renew IP addresses.
http://support.microsoft.com/default.aspx?scid=kb;en-us;q121005
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Windows 2000 is the first Microsoft OS which can be used in a pure DNS server environment (ie, not requiring WINS) by not using NetBIOS. So, if you disable NetBIOS support in 2000 Server or use NTLM2 authentication only, your Win9x clients will not be able to properly access the 2000 server, authenticate, or view network resources. Also, if DNS clients which are not NetBIOS capabale (typically Unix variants, or 2000/XP without NetBIOS) are on the system, WINS is necessary with DNS for these clients to 'see' older Windows clients which require NetBIOS (9x/ME/3.x/NT3.x/NT4).