Lets try to get a little clarity around your setup here.
You have install fog, is it safe to assume you installed 1.2.0, or did you install the current fog trunk version (i.e. pre 1.3.0)?
Is it safe to assume you are using a Microsoft dhcp server? (your event log might suggest something different). One might think you have two dhcp servers covering the same subnet.
What exactly did you set options 66 and 67 to?
What is the IP address of your fog server?