Hi Virginia,
You wrote about <the only "diagnosis" that rung a bell for me was the
dermatologist's:  "possible sebaceous cyst."  Treatment would be removal.>

About a year ago a fellow midwife who had recently given birth asked me to look at her nipple, which had a discrete white lump that had developed during the pregnancy.  I was quite confident that it was a sebaceous cyst, and best left alone, at least during lactation.  
My management plan was supported by the experience of our Labrador bitch, Elke, who had birthed and nursed several litters of beautiful pups on behalf of the Guide Dogs Association.  Elke has a large sebaceous cyst on one of her nipples, (approximately doubling the size of the nipple) and it has not caused her any difficulty with lactation or suckling her pups.  The veterinarians involved with Elke's care recommended no treatment.
My client accepted my advice, and is breastfeeding beautifully.
I hope this helps,
Joy Johnston
Midwife IBCLC
Melbourne, Australia