I think the thing is that, if the skin is dry and cracking (you can't always see this, the cracks are microscopic) then the chlorhexidine in the Ovestin will really sting on those raw bits. Just like if you cut yourself, it can sting when you put antiseptic stuff on. And we have a lot of nerve-endings down there. In turn, that will then make it inflamed because it is sore and so on.
But the thing is that, in the long-term, the estrogen in the Ovestin is what you really need to fix the cracks and get things better again.
I reckon, try using an estrogen locally which doesn't have chlorhexidine in it - like the Blissel stuff - but apply 2x daily. And also use one of the oil-based natural moisturisers like Olive and Bee or YES OB and apply that over the top of the Blissel layer. This will cover the skin with a layer of oil-based stuff which will help stop it further drying out.
After you've done that 2x daily for at least a month, you could try using the Ovestin again because the cracks will hopefully have healed by then and so it won't sting and you'll benefit from the higher estrogen dose in the Ovestin.