I've been having the same problem- I saw an ad on TV for Desitin "anywhere" cream that is safe for babies faces- but I haven't seen it at my local Target. I actually put some regular lip balm on DS's face last night before bed. Didn't seem to make a difference yet.
We use the J&J Soothing Naturals balm stick. You can get it in Target, Wal-Mart, etc. You can use it anywhere on their body, including lips. Works within a few days.
Re: Rash from drooling
Ditto! That stuff is awesome!!