The sooner you get it removed the better. The longer it stays in there, rubbing etc... the more chance you have of the dog developing arthritis or worse arthritis or other complications.
He may already have slight arthritis there depending on how much damage that chip has already caused.

If done properly he should walk normal, or at least the same as he is now. Again it really depends on how much damage that chip has already caused. I do know that it should not cause anything to be worse thats for sure.

I'd have a consultaion with your vet, or actually the specialist. Go ahead & ask him exactly what you said here & more if need be. You should know all abut the surgery before its done therefore you know what to expect & how to treat him during & after his recovery.

Good luck!