Paul:
Thank you for taking so much trouble, but it is good to know that the error can be reproduced and seems unrelated to Lyx. I experimented myself in similar ways. In view of what you report and what I tried, I came up with the conclusion that the error appears somewhat unsystematic. I used also other standard bib style files, with the result that the error is unsystematic and disappears if I use numerical instead of author-year. (I threw out those things you mention and others as well.)
My conclusion is that this is a BibTeX issue, unrelated to Lyx. I noted that the LaTeX compilation generates the error messages that induce LyX to stop.
I noticed also that sometimes pdftex generates a valid PDF file in the Lyx temp directory, although Lyx reports an error and the PDF cannot be viewed from inside Lyx.
From this I would draw the conclusion that it would be nice to have a possibility to run Windows commands or shell commands from inside Lyx. Maybe this is possible, maybe by writing a "fake" conversion script. I shall try to find out. This would make it possible to write a batch file that exports to LaTeX and then runs pdftex several times more than the LyX standard would do, and another script to view the PDF in the temp directory.
Thank you again for extensive check you did. If I find out something, I shall post it on this thread, but at the moment I go on and compile outside LyX.
Kind regards
Ekkehart