I've experienced what you are seeing Steve, but not necessarily in relation to driftwood. I'm also not 100% sure of the cause specifically. I've come across a variety of suggestions - pH, dGH, KH, parasites, etc.
IME, aside from ich, parasites aren't very common if you get your fish from reputable sources. The only fish I've ever lost with 100% to blame on parasites were clown loaches imported from overseas. (Figured it out because I treated the next few I bought and they are still with me to this day).
I hope things work out - not sure I'd be too worried about the flashing unless you have very abrasive decor in the tank. If so, they may damage their scales/skin and fungus could become a concern, or in severe cases, significant lacerations could occur.