M.M.
Have you tried switching diaper brands? Sounds like just a reaction to something in the diaper. My son got redness/rashes from Pampers but not from generic brands (like from Walmart & Target).
If you are using cloth diapers, try a different free/clear detergent, eliminating OxyClean, dryer sheets, etc.
And, don't worry about his lovey! It is a great way for him to self-soothe.
Good luck!