Erik:
Due to the very narrow pulse on the reset pin coming out of processor during the Watch Dog Timeout period it is somewhat unlikely that the LCD module can be reset due to a 8->9 µs power down and re-power on. This is why I recommended the use of the port pin wherein the power on of the module can be delayed until the software is running and under control of the timing.

A couple of LCD modules that were used in some projects that I worked on had 0.1 µF or 0.47 µF capacitors onboard and a microsecond width power off to back on cycle was essentially transparent to the LCD module. This is made even more of an issue in that some of the standard character mode LCDs continue to remain operational down to Vcc levels of less than 1.2 volts. I found sometimes that an LCD module reset introduced under software control of the module Vcc required off times well in excess of 50 milliseconds.

Michael Karas