DS had a very bad rash when 2 weeks old which turned out to be thrush and would only go away with an anti fungal, I would go to the MCHN if I were you and get their opinion on it.

Although we also have found that wipes give him a rash and limit the amount we use them. At home we too use water, however I am lazy and don't want extra washing of pooey face washers so I use home brand cotton makeup removal pads which are just pressed cotton wool. Ends up a little cheaper too.