Hi S.,
I just had almost the exact situation with my son, almost 3 months now. I stopped nursing at 2 months and he was not responding well to the formula (Enfamil Lipil). We then put him on Similac Sensitive (lactose-free) and that didn't work out either. He is now on Nutramigen (hypoallergenic), which is agreeing with him. When my son was on the regular Lipil. I thought it was milk allergy too, because he had broken out and was really gassy and fussy. It wasn't an allergy but his ped thought he may have a sensitivity to lactose or milk protein.
I would try either the Similac Sensitive, or a hypoallergenic formula (Nutramigen, Alimentum). Also, my daughter was on Gentlease (Enfamil makes it, has reduced lactose in it). Your son may just have a sensitivity to lactose or milk protein. But speak with your pediatrician before you do anything and see what he thinks.
The hypoallergenic formula costs a small fortune and I know many insurances do not cover it, unless it is a serious medical matter. However, inquire with your insurance anyway. Some of my family has GHI and I know it is a very good provider.
Good luck to you. If you have any more questions or need any more info, let me know!
~M.