I have had a reverse experience from yours. My skin has become incredibly smooth and soft. I used to have huge drying problems on my legs after I started iodine, wow, amazingly it shines. I try to sun bath everyday. I can tell you that your skin may be flaking due to sun and not iodine. My belief is that Iodine is a great supplement for skin health. I have mentioned this before here, that many people ask me what do I do with my skin, what soaps and lotions do I use. The fact is I do not use any soaps or lotions. Well, in my case being totally vegetarian since birth also helps my skin.
Try to mix one drop of Lugol's with coconut oil and just massage your whole body with it. I am sure those nasty flakys will go away.