At first glance, it's a strong image. I really like your black and white treatment. Pushing the contrast a bit and emphasizing the fur really makes this a more dramatic and interesting image.
My preference would be to not completely eliminate the leg sticking out. Allowing it to fall into deep shadow and perhaps de focusing it more than the original, while keeping it subtly visible would work for me. But then again I have an almost obsessive preference for documentary photography. (I often do very extensive retouching for the advertising photography my company produces, but when it comes to my personal work, I am reluctant to even move a piece of trash out of a shot because it breaks the documentary aspect of the image.)
On the technical aspects of retouching, I feel the way you have de focused and removed the leg is a bit too evident. There is a bit of blur where the leg extends from the body that seems unnatural and thus gives away the retouching. The eyes in the retouched version are certainly clearer and more alive than the original, but I feel as if there is something just very slightly off about them. I would be inclined to overlay the original eyes and fiddle with the transparency to keep a small amount of the actual look of the dog. Maybe my approach is inappropriate here... I guess I would rather see some of the "faults" and see the real individual dog than see an idealized version that didn't fully capture the dog's personality.
In answer to your subject line, I think the photoshop goes just a little too far here for my tastes, but it really depends upon what most effectively commemorates the dog to whoever loved her.