Thanks to Catherine for this Frugal Baby Tip!
Josh had a diaper rash problem like this and it was caused by food allergens in his diet. When Josh got really bad with his allergies, he would go back to exclusive breastfeeding for a couple of weeks till his problems would clear up.
What I did: I put a layer of Penatan (zinc oxide) cream all over his bottom at every diaper change. Then I would put another layer of Baby Unpetroleum Jelly over top of that - so that his urine and poop would not touch his skin. And, of course, frequent changes.
Then I would search his diet for the offending food and remove it from his diet. For him it was mostly the acidy foods like citrus, as well as eggs and pork.
Hope that helps...