If the fish is eating I wouldn't worry about the lips. They are actually what is referred to as fibroma, I looked into it, and they can be surgically removed. This takes a steady hand, and a sharp, clean blade. Care is needed to remove only the overgrown tissue, the bottom lip tends to heal better than the top. I would only be concerned with this if the fish seems to have difficulty eating.
The lip fibroma may be related to the undersized tank the fish grew in, the septicemia & stunting almost certainly are. The fish may or may not grow more if given the proper amount of tank space, as well as a good diet. This will probably depend more on the age of the fish, it only seems slightly stunted, as the fins appear to be in pretty good shape. A dime size angel is usually around 2 to 3 months old, so this fish is around 14 or 15 months old, giving it a decent chance.