Circular Skin Lesions

Question
I have a 65 lb, 9 y/o male Aussie. He has hypothyroidism and has been on Soloxine twice a day for as long as I've had him (1.5 years). We have never had an issue with the dosage to keep his thyroid well within acceptable levels. He also takes fish oil pills once a day.
Since about November 2011 he has had dime to nickle sized circular spots of very dry, peely, and itchy skin on his torso, but none on his face or legs. His paws are also itchy and he will chew them.
Originally I assumed they were healing flea bites as we had a nasty bout of them in October, but we had ride him of fleas completely by Halloween and he is now on Advantix II monthly. After the lesions did not improve with time, I took him to the vet in December.
My vet thought he probably had ringworm and put him on prescription Fluconazole and advised I apply OTC fungal cream daily. After 2.5 weeks, the lesions did not improve and had actually spread over more of his torso.
After we made sure the anti-fungal was out of his system, the vet did a full blood panel. It came back today 100% normal. The vet says he has never seen anything like this and plans to do a medicated bath on Friday.
I have photos of the lesions but am not sure if I'm able to submit these to you as well.
So far he does not appear to be contagious. Over the holidays we visited with family for a week who had two dogs of their own and neither of their dogs show any symptoms. None of the people in our house have any symptoms either. To curb his itchiness, I give him 1 Bendadryl before bed so he can sleep through the night.
Thank you in advance for any advice you can offer. I'm not sure what to do when even my vet doesn't know what's wrong!

Answer
Hypothyroid dogs are very prone to bacterial skin infections. A 3 week course of an antibiotic like Cephalexin, may help heal these circular lesions.  It would be a good idea to have the vet run a thyroid test 2 hours after you give him his morning pill to make sure that the medication dose you are giving is getting him back into the normal thyroid hormone range.  If that is OK, then I would consider that there are some allergies going on.  Dogs that lick their feet usually itch because of allergies.  Benadryl and other antihistamines do not really help dogs with skin allergies...steroids are needed.  In the case of a hypothyroid dog, I might want to use cyclosporine (Atopica).