Richard's probably the best equipped to answer this ...
If you put a hanging paragraph immediately after a standard paragraph, using the hanging module, LyX does not insert a paragraph break between them, so the hanging "paragraph" just continues the previous one (with a little extra space). The work-around is to insert a separator between them. This might be related to bug 3354 (?). I'm guessing the behavior is not intentional, but before I put it in bugzilla (and spam all sorts of people) I thought I'd check it (by spamming the developer list). ;-)
/Paul
