I have heard of a lot of problems like this, and usually it is allergies. My friend's neice has a Bichon, and does that a lot. Actually, the mother owns a day care center, and she chews and licks her leg, (she does loose fur) and the people with children don't want their children around her, so they have to get rid of her.
It might be an allergy, but I would try bringing your dog to the vet.
Hope this helps!