Hypothesis 2
Fracture involving stifle joint
A fracture resulting in displacement of bone would cause severe inflammation and pain initially.  Initially there would be hematoma followed by callous formation.  This would be followed by formation of new bone and remodeling. Since the fracture was not set/immobilized the bone may not be restored to original form and function.  This will also cause joint instability and may progress to osteoarthritis. This explains the original painful episode which healed.  The dog was then normal for six months.  After the osteoarthritis developed the dog then became 3/4 lame and according to the history has remained at this level of lameness since the recurrence.  If the lameness is intermittent it may be due to the patella luxation caused by the joint deformity.  The patella may only be out of alignment periodically. The deformed joint may cause the patella to luxate with minimal force.  The patella can luxate because the original fracture involved the groove in which the patella sits.  If the bone fragment was displaced and healed in an abnormal location this could explain the ability of the patella to luxate.