My son had cradle cap too (extreme) and now he only has only little spot; he is already 4.5 months old. Our pediatrician recommended that we put Vaseline on his head one hour before bathing him and then take a baby brush with baby shampoo to brush out all of the skin. We did this routine about 3-4 times per week and you would not believe the difference. You should not put Vaseline on her head when she goes to bed because you need to allow her skin to breathe and allow her sweat glands to work. We also put a small amount of Aveno lotion on his head after the bath to help with the itchiness and that seems to work. Our pediatrician also recommended using a little Head and Shoulders shampoo once a week, but we only tried that one time because the other suggestion worked.
My son has eczema (terrible). We were given 3 options. 1. Use hydrocortisone cream to help with the red scaly spots, 2.Use a prescribed topical antibiotic (which works wonderfully), 3. give our son an oral antibiotic (which made him ill). Options 1 and 2 work best, but we still have to use them when he has his extreme flair ups, however we use lots and lots of lotion right after the bath and almost every time we change his diaper and that really helps.
--Mom of a newborn boy and 2 step kiddos!