We present detailed calculations on the effects of internal dust on the Balmer and Lyman decrements for a spherically symmetric distribution of low covering factor clouds photoionized by a power law. In the first stage, we assume an open geometry with clouds represented as slabs and consider the effects of Lyalpha resonance and absorption by dust. We consider the important effects of perspective on the emergent fluxes, which in our simplified scheme present either the photoionized face to the observer (''f'') or the back (''b'') face. We adopt canonical values for the gas excitation (U(f)) and for the ionizing energy distribution (alpha = -1.4, F(nu) is-proportional-to nu(+mu)). After reviewing the effects of separately varying the gas density in the dust-free case, we adopt a single representative density of 5000 cm-3 in all our calculations and proceed to compute sequences of photoionization models in which the relative internal dust content by mass (mu) is progressively increased to values comparable to the local ISM (i.e., mu = 1). Although we always adopt solar metallicity for the gas + dust phases, as we increase mu we deplete the gas phase abundances in accordance with current knowledge of the depletion indices following a procedure described in Appendix A. We find that for moderate amounts of internal dust mu = 0.2-0.3, radiation-bounded clouds result in Lyman and Balmer decrements in the range 32 37 and 3.0-3.1, respectively. To cover the case in which the clouds are more massive than implied by the condition of being radiation-bounded, we also consider adding a neutral gas+dust zone of column density N(H0)0 beyond the partially ionized zone. Our main result, valid for the calculations with standard NLR input parameters and for an open geometry in which multiple cloud covering is negligible, is that even with internal dust, while Halpha/Hbeta is reddened, Lyalpha/Hbeta turns out not very different from recombination case B. The Seyfert 2 observations show much lower Lyman decrements than predicted from the spherically symmetric model and a critical study is made of various explanations: dust- or line-scattering screens, a semiopen geometry or a fully closed spherical geometry. We find that Lyalpha/Hbeta and Halpha/Hbeta obtained from calculations using a semiopen geometry can span the region covered by the Seyfert 2 observations. We also study the possibility that dust reddening of the continuum may account for the apparent deficit of ionizing photons seen in many Seyfert 2's. This reddening may be present in addition to, or in place of, the anisotropic beaming/occultation of ionized radiation (cf. occultation/reflection picture'') that is generally invoked to explain the deficit.