It sounds like he's allergic to something he's exposed to a little at your house, and even more at his dad's house. Has he been tested for allergies? Severe allergies and eczema go hand in hand. Eczema can present as a flesh colored rash that itches like crazy, and it can also present as blister like sores. Which doctor said it was scabies???
If it were my child, I'd go back to the derm and ask further about eczema.... even admit that you didn't give him the steroids.... and if he says he thinks it is eczema, then do the eczema treatments EXACTLY as the dermatologist prescribed (including the steroids) and see what happens.
Also, start checking for things he could be exposed to from your house to his dad's house, that might be causing reactions. Are there pets? Does his dad have a pet that you don't have, but maybe one of his friends around your house does (maximum exposure at dad's house, minimum exposure through a friend near your house). Look for things like that.
Hope this helps.
*** OH! I absolutely do NOT blame you for not using the steroids at first. I wouldn't have either, I hate the monster steroids creates in my kids! BUT, in this case, the steroids might be necessary.
A really good lotion for eczema is one called Renew, which is made by a company called Melaleuca, I think... I can't remember, but you can find them online. I used to sell it a few years ago, and stock piled the stuff because it was so good (but I don't sell it anymore)! Another good lotion is your basic goat's milk lotion, which you can find in most natural foods or whole foods stores. Also something you can look up online. I got something called the "wee bar" which is a goat's milk soap, for my infant daughter when she had a bad eczema like rash. It cleared up fast after using it just a couple of times!
Again, hope this helps!