My DS had heaps of hair and cradle cap - it would come away by itself and the hair would come out too. I used oils and other things on his scalp to try and get rid of it and it came back within a couple of days. In the end, I gave up and his cradle cap cleared up by itself eventually. As I said though, he had lots of hair so it was very easy to hide his cradle cap, though people did notice when they were holding him. I don't think it hurts them, it just doesn't look overly attractive.

Don't worry about the bald patch, it will grow back.