PiFM is one of those really cool wow projects. I still want to get around to playing with it it's that cool. Unfortunately this means I don't know about the second part of your problem. Still, I have a basic understanding of radio so I can take a stab at what's going wrong with being unable to transmit on 89.7.
A simplified explanation of how radio works is that you vibrate the antenna at your frequency, varying it a little because it's FM - Frequency Modulation. Now the important bit here is that vibration. How much the antenna can vibrate is related to the length of it, the longer it is the more it can vibrate, and you can broadcast at a higher frequency. There's a bit more to it than that involving modes and multiples, but that's the fundamental.
What I suspect is happening to you is that your antenna is just a little bit too long (maybe 1 cm or so). When you try to broadcast, or vibrate at 89.7, the wave travels down the antenna at a frequency it really doesn't want to vibrate at - there's no resonance, so it wants more energy than the Pi puts out, so you get no signal.
There are calculators for working out the correct antenna length, but I think a rough rule of thumb is 300 divided by the frequency, so (300 / 89.7)/4 = 0.836 meters. Not sure about that rule though. Might get away with /8 and 0.418. Note the multiples of 2, that's a resonance/natural frequency thing.