HP Procurve VLAN config problem

I'm having some trouble getting a second VLAN on our HP Procurve 4000m
to funtion properly. We have a pretty basic setup; the default
VLAN(VLAN1) and a secondary VLAN(VLAN2) which I have designated 3
ports (F1-3) to be members for testing. All ports are in "untagged"
mode. VLAN1 has been assigned an IP address but VLAN2 has not (that's
supposed to be OK according to the HP manual). When I plug a feed into
a port on VLAN2 I get link activity on all 3 ports but no connectivity
between members whatsoever. Also, network connectivity on VLAN1
becomes very inconsistent, about a 25% packet loss for 20 ping
requests.

Other config notes: Spanning tree is disabled, Automatic Broadcast
Control is enabled. We are running the latest firmware vC.09.16 (Sept
4, 2002).

I feel like I've followed the recommendations in the users manual
pretty well so am out of ideas. Any suggestions you have would be
greatly appreciated.

Does VLAN 2 have any way of handing out IP addresses? Without I
addresses, the computers on that VLAN will not be able to talk t
each other. Because they are on a VLAN (unless you have a route
between VLANs) they don't have access to your VLAN1 DHCP/DNS access
Is this perhaps the issue