it does sound like it might be LP. i would call around to see if there are other vets that are familiar with LP and small dogs, and get a second opinion from them.
a very good product to try for LP is consequin
Cosequin Reqular Strength
i have been giving it to milu for over a year now, and her LP has improved. she went from grade 1-2 LP to the vet saying, "did i say she has LP?" when i asked him to check again. lol.