My first daughter had something similar (patches of irritated dry skin) - it turned out to be Eczema. Everyone has given great advice; I'll just add what I did to clear up my daughter's problem, (she had extremely sensitive skin).
The most important was to make sure her clothes were washed in sensitive soaps and softener (since they are on her skin all day!) I made sure to use the sensitive version of laundry detergent for EVERY item of clothing (including all towels and of course bedding). I only used fabric softener sheets, but now they have a sensitive liquid version that I use.
For bath time I switched to Gentle Naturals Eczema baby wash and used their Eczema cream on the affected areas, (it helped protect her skin from other irritants and sealed in much needed moisture - it's kind of greasy though).
My pediatrician also recommended using Aquaphor which is also a sealant to protect the skin from drying out further - I found this to be even greasier than the Gentle Naturals.
Good luck - hope you find something that works for your daughter!
S.