Hi Chrissiecroy - has the Dr now given you Ovestin instead of Vagifem? If so, you need to use the applicator to insert the Ovestin into the vagina and then use what is left in the applicator on the outside area where you feel uncomfortable. If the Dr has given you Vagifem and Ovestin, then use the Vagifem as normal and the Ovestin externally, as and when the Dr said.
If you want to use a moisturiser on the exterior parts, when not using Ovestin, then Yes water-based or Yes VM would probably be the most helpful for getting moisture to the area and making you feel more comfortable.
I hope that helps!