My experience with herps (no, not herpes) makes me want to say mouth rot. Looks like there's some cold water fish prone to a similar condition, and the pictures do cause reddening along the mouth before severe degeneration occurs. I'd treat now with some strong antifungals and antibiotics in a quarantine tank. Skip all the gram positive crap like tetracycline; people push it, but there's a very good study out of the University of Victoria, BC showing that things like tetracycline have pretty much no impact on diseases in ornamental fish. Try something more along the lines of amoxicillin.
I'm pretty sure this is the paper on the subject:
http://aac.asm.org/cgi/reprint/10/4/598.pdf
-Philosophos
*edit* I did some looking around; order some gentamicin cheap here:
http://cgi.ebay.com/Gentamycin-Sulfa...QQcmdZViewItem