I run so I had this problem a while back. I ended up switching to synthetic socks and a better ventilated shoe. I have no problems other than the occasional blister now. I noticed that when I wore cotton socks, they'd get wet from all the sweat. The synthetics do a better (not perfect) job of wicking the sweat away and reducing the rubbing.
An alternative is to get Body Glide or Monkey Butt (it has a picture of a cartoon monkey) from your local sporting goods store. It looks like a stick of deodorant that you apply to your feet/legs/whatever so you don't chafe or rub.
Edit: Monkey Butt is a powder and I see that you used baby powder so you might try Body Glide instead.
Grover, thank you so much for your help. 2 TP's, for each of your amazing ideas, I will try both of those and i appreciate your taking the time.
Anyone else? I'm in a TPing mood 
I"m not sure I suffered from this exact same thing but perhaps my story might be helpful.
-My feet looked exactly like your foot in the picture
-I kept playing on said feet in pain
-and kept playing
-and kept playing
-and kept playing
-eventually these painful blisters turned into painless calluses (which was fine with me, but they looked disgusting which wasn't cool with my woman)
-my girlfriend advised me to get a pedicure in an effort to shave down/manage the thick calluses that had formed
-i was very skeptical about said pedicure but was comfortable enough with my sexuality and my feet to give it a whirl
-so there I was, in a Vietnamese nail place in Florida (on vacation with my gf) about to get my calluses dealt with
-the woman was quick and efficient, and the experience was pain free
-my feet have felt amazing ever since and the calluses have remained practically unnoticeable
-I don't see myself re-visiting a place for another pedicure but if the calluses were to get big again I'd certainly do it again
So that's my story. Might not be helpful but I thought I'd share.