So reading more of your post, was there welding at the wheel opening before you welded there to attempt fixing? It's also possible (now that I look at pictures again) that someone repaired the lip and the weld shrunk it as it cooled, leaving the bulge. If this is more likely the issue, I think that area needs to be cut out, hoping the bulge in the panel goes away, and then cut/form a new patch. Does this lip use wired edge?