I have to say the baby oil thing worked wonders for my daughter. She has a tendency towards dry skin also, so I was worried about drying her out further with any shampoos frequently. She had the cradle cap maybe 1-2 months before I tried the baby oil, and I only had to do it twice (I bathe her twice a week) and honestly I haven't seen any cradle cap since then!!
What I did is I put the baby oil on her scalp, massaged it in and let it sit maybe 10 minutes. Then I used a comb to comb through her hair gently and some of the flakes just started coming right off in the comb. After about 3-5 minutes of this I bathed her as usual. I washed her head twice, but after the bath and a little drying, I could still tell there was a little baby oil left over, but I just left it. After bath #2 a few days later and doing the same thing, the cradle cap was gone.