The skin lesion you describe seems to be due to Seborrhoeic Dermatitis
.Your little boy might require a good cleanser and mild steroid
cream to get the dermatitis under control.
The loose motions you mention is not related to the skin rash
.He must be suffering from viral diarrhoea
. keep him well hydrated and continue with his regular feeds.keep a watch on the urination .If he passes less or no urine then get him examined by his doctor.