First let me say that technically there are two correct answers, although I added an adjective to the choices that made it a little easier to separate the two.  The answer is:

MRSA.

Up to approximately two years ago, MRSA was limited to hospitalized patients.  In general, it was not an invasive organism, but its presence did mean that the patient had a higher mortality and it was treated with great care.  Two years ago, however, MRSA started showing up in the office.  It would generally show as skin abscesses with accompanying cellulitis (infection of the skin).  This transition from a non-invasive to invasive organism has been well-documented, the two known strains being described as community-associated MRSA (CA-MRSA) and hospital-associated MRSA (HA-MRSA).  From the CDC website:

Recently recognized outbreaks of MRSA in community settings have been associated with strains that have some unique microbiologic and genetic properties compared with the traditional hospital-based MRSA strains, suggesting some biologic properties (e.g., virulence factors) may allow the community strains to spread more easily or cause more skin disease. Additional studies are underway to characterize and compare the biologic properties of HA-MRSA and CA-MRSA strains.

A local ER physician told me that they get patients coming in regularly with a complaint of "spider bite."  Invariably, they have CA-MRSA infections.

In this case, the child had what appears to be CA-MRSA, due to the presence of skin lesions.  How exactly this was transmitted to the child is not clear, although daedalus2u astutely pointed out in his comment that since the child had been born via c/section, his skin was not colonized with the typical commensal organisms that would be transmitted via vaginal delivery.  This may have set him up for a more invasive organism to take advantage and cause this infection.

Why did it occur in the groin area?  Two possibilities come to mind: the first is that the child was circumcised and so transmission to this area from physician or caretaker may be more likely, with the healing "wound" from the procedure.  The second thing that probably set this up is the fact that the diaper area is wet and dark, so the skin is prone to becoming irritation, compromising the integrity of the barrier and allowing infection to ensue.

Technically, this is a case of impetigo, as staph and strep can both be the causative organisms for this type of infection.  My addition of the word typical tried to allay that problem.  Certainly it could have been bullous impetigo.

Herpes simplex is potentially transmitted to a child during the birth process as they pass through the birth canal.  Since this child did not do so, it is less likely the problem.  Herpetic bullae (blisters) are usually clear, not cloudy.  Herpes is, however, a great fear of pediatricians in this circumstance (so viral cultures were sent as well).  An infant with a herpes simplex infection is at higher risk of developing herpes encephalitis, a potentially fatal condition.  During my residency I saw a case where herpetic lesions were left untreated in an infant and the child ended up with encephalitis.  This caused massive destruction of the cerebral cortex.  The result was devastating.  I have had a great fear of herpes in children ever since.

Candida is a common "infection" in the diaper area of children.  The most common presentation is a red, raised bumpy rash with discreet "satellite lesions" around the periphery.  Since this child had blistering lesions, it was not the diagnosis.

In this case, Bactroban was applied and the child was treated with Trimethoprim/Sulfa - the first-line oral agent for this type of infection.  We also recommend that the child and family members are washed in Hibiclense (a strong surgical scrub) to decrease the chance of re-infection.  A recent article in the Annals of Internal Medicine suggests that if there is no cellulitic component to this type of infection, it can be treated with just drainage and topical antibiotics.  In a child this young, however, extra caution is warranted.

The shocking thing to us was the age at which this presented.

Thanks for your comments.  This one was easier than the others.  I have had some very interesting cases recently, so tougher ones are on the way.