On the datasheet, 1.7V is the typical dropout voltage, not the maximum.
PS - low dropout regulators are not expensive, take a look at http://uk.rs-online.com/web/c/semiconductors/power-management-ics/low-dropout-voltage-regulators/?sort-by=default&sort-order=default&applied-dimensions=4294511048,4294511483&lastAttributeSelectedBlock=4294957120 or http://uk.farnell.com/microchip/mcp1700-3302e-to/ic-v-reg-ldo-250ma-to-92-3/dp/1296588?Ntt=MCP1700-3302E/TO.