my daughter had two small spots on her forhead in the hairline... it grew to be about the size of a dime and was bright red and puffy, but is now starting to involute... i believe it stopped growing around 3 months.
in my non-expert opinion, your baby's H sounds much like mine, and while it looked rather alarming, it wasn't a big deal, we had no problems with ulcerating or anything like that. my guess is that your baby will have the same outcome.
i'm going to post some pics, hopefully they will make you feel better. please know that most of the pics you see on the internet are worst case - the vast majority of H's are not an issue at all.