My Soft-coasted Wheaten Has Crusty Large Scabs That Flake Off And Reveal Raw Areas Underneath. If The Hair Is Cut Away, The Scab Parts Picked Off And It Is Kept Clean, It Heals In Two Or Three Weeks But The New Hair Growing In Is Brown. What Is It?

Skin problems in dogs are parasitic, allergic, bacterial, fungal or hormonal.

I'm guessing your vet has ruled out mites (parasitic) and ringworm (Fungal). These are more common, and quite a lot more obvious, so would not need a surgery. I also don't think this is allergic (where there is no hair loss) or hormonal (where the hair loss is even throughout the body).

Bacterial infections would lead to reddening of the skin, with dry and crusty appearance and loss of hair. This is more common in obese dogs, especially around folds in their skin. Treatment includes removal of the hair around the lesions, washing the dog with antibiotic shampoos, applying antibiotic ointments, and in some extreme cases, surgery, where the skin folds will be corrected. The infection will keep coming back if the medication is not properly administered.

The change in fur color could simply be because of the stress the skin is going through. I would not worry much about that, but more about the treatment your dog needs.