I interpret what you said about closing the viewer to mean that it's not just Update PDF that balks, but that View PDF will also balk (meaning that if you View PDF, close the viewer, edit the document and click View PDF again you'll get the unedited version). Charitably assuming I go that right, you might try the following experiment: View PDF, close the viewer, edit, View PDF again, verify you're still seeing the old version, then close the viewer (but leave LyX open). Open the temp directory in an Explorer window and use Notepad or whatever to check the .tex file, looking for whether LyX wrote the change to the .tex file. If yes, run pdflatex against the .tex file in a command shell and see if it succeeds in updating the PDF file. If one or the other of those steps breaks, maybe that will shed a little light.
/Paul
