L.H.
My son is 3 1/2 and sucks his thumb. It is getting less and less, so rest assured. Everything I have read says it is not worth trying to stop before age 4 due to all of the emotional/developmental changes children go through while young. So ... I have a challenge right around the corner, huh?! :)
Anyway ... He too used to end up with severely dry, cracked skin. When it got really bad I would use the ointment that mothers actually use for cracked nipples from breastfeeding. It was suggested to me because that is formulated so that it is not harmful for baby (or child). I can't remember what it is called because it has been some time since we had to use it, but they kind I bought came in a purple tube.
Now from time to time we use baby aquaphor healing ointment. He doesn't suck his thumb nearly as often, so the worry of him ingesting it isn't as big at this point.
Good luck!