Ubuntu 7.10 Gutsy Gibbon
eth0 is good (not the issue here) and its a static ip address
eth1 has a static ip address.

eth0      Link encap:Ethernet  HWaddr 00:19:DB:A7:86:E4  
          inet addr:192.168.1.100  Bcast:192.168.1.255  Mask:255.255.255.0
          inet6 addr: fe80::219:dbff:fea7:86e4/64 Scope:Link
          UP BROADCAST RUNNING MULTICAST  MTU:1500  Metric:1
          RX packets:680276 errors:0 dropped:0 overruns:0 frame:0
          TX packets:673392 errors:0 dropped:0 overruns:0 carrier:0
          collisions:0 txqueuelen:1000 
          RX bytes:576805832 (550.0 MB)  TX bytes:399660731 (381.1 MB)
          Interrupt:20 Base address:0xa800 

eth1      Link encap:Ethernet  HWaddr 00:04:5A:85:C1:56  
          inet addr:10.0.0.1  Bcast:10.0.0.255  Mask:255.255.255.0
          inet6 addr: fe80::204:5aff:fe85:c156/64 Scope:Link
          UP BROADCAST RUNNING MULTICAST  MTU:1500  Metric:1
          RX packets:2419444 errors:3 dropped:0 overruns:0 frame:3
          TX packets:2415178 errors:0 dropped:0 overruns:0 carrier:0
          collisions:0 txqueuelen:1000 
          RX bytes:1782941750 (1.6 GB)  TX bytes:185408814 (176.8 MB)
          Interrupt:19 Base address:0xc800 


main@main:~$ sudo /etc/init.d/dhcp3-server start
dhcpd self-test failed. Please fix the config file.
The error was: 
/etc/dhcp3/dhcpd.conf line 12: subnet 10.0.0.1 netmask 255.255.255.0: bad subnet number/mask combination.
subnet 10.0.0.1 netmask 255.255.255.0 
                                    ^
Configuration file errors encountered -- exiting

this is my /etc/dhcp3/dhcp.conf:
# Don't set "authoritative" until everything else is correct in dhcpd.conf
authoritative;  # Warning: this overrides other DHCP servers
# Default options in Ubuntu:
ddns-update-style none;
default-lease-time 600;
max-lease-time 7200;
log-facility local7;
# Subnet row defines server's network card. Also set in "/etc/default/dhcp3-server"
# 'sudo /etc/init.d/dhcp3-server force-reload'
# http://www.iki.fi/karvinen/ubuntu_dhcp.html
# LTSP
subnet 10.0.0.1 netmask 255.255.255.0 {
range 10.0.0.10 10.0.0.20;
default-lease-time 86400;
max-lease-time 86400;
option routers 192.168.0.0;
option broadcast-address 10.0.0.255;
option subnet-mask 255.255.255.0;
}

I ran ipcalc to find out what its doing:
main@main:~$ ipcalc 10.0.0.1 255.255.255.0
Address:   10.0.0.1             00001010.00000000.00000000. 00000001
Netmask:   255.255.255.0 = 24   11111111.11111111.11111111. 00000000
Wildcard:  0.0.0.255            00000000.00000000.00000000. 11111111
=>
Network:   10.0.0.0/24          00001010.00000000.00000000. 00000000
HostMin:   10.0.0.1             00001010.00000000.00000000. 00000001
HostMax:   10.0.0.254           00001010.00000000.00000000. 11111110
Broadcast: 10.0.0.255           00001010.00000000.00000000. 11111111
Hosts/Net: 254                   Class A, Private Internet