Sounds like a MiKTeX problem, but it's hard to figure out what it would be. After upgrading, did you remove the previous version of MiKTeX from your system?
Create a short test document in LyX and export it in "LaTeX (pdflatex)". Take a look at the .tex file and make sure that there are spaces between the words. Then run pdflatex against it (in a command window) and see if the same problem occurs. Paul
