problem with HostOnly interface

I am using VMware Server 2.0.1 on HP server with OS RHEL5.

I have two HP servers on same LAN with same subnet. On the first server, I installed VMware, and created a HostOnly interface, then I get vmnet1 as 169.254.64.1. But I found that from the other PC, I can ping 169.254.64.1. As it's a HostOnly interface, how an external server can ping the HostOnly IP? I strongly suspect that's a bug of VMware Server.