Lovecraft's style is deliberately archaic (even for his own time period), but it's completely correct English. Chris has the right explanation.
In the present tense, you "lie in bed." If you're talking about the past, the correct form is "lay." "Last night, I lay awake in bed for several hours before I finally fell asleep."
Most native speakers do not know that this is the correct form, and they use "laid" instead. It's much more common to hear native speakers say "I laid awake in bed for several hours." It is not grammatically correct, however.
Lovecraft's English is *strange* (it often sounds more like poetry than prose), but it is generally very correct. I doubt you'll ever catch him making a grammar mistake, except in dialogues where the characters are the ones making the mistakes.