Am i correct in assuming that if the Dawg bystander gets ko'd then you cannot make another one?

SIC 'EM DAWG Lobo starts the game with DAWG attached. When Lobo clears exactly one action token or when DAWG hits an opposing character with an attack, heal Lobo 1 click. //FREE: Place an attached DAWG adjacent or attach an adjacent DAWG.

That's correct.

If the dog dies you can then REPLACE Lobo with John Wick.