Stasis Dermatitis: Given the patient's history of peripheral edema and diabetes, stasis dermatitis is a common condition that occurs due to poor circulation and fluid buildup, leading to skin inflammation and a raised erythematous rash, typically on one leg.

Cellulitis: A bacterial skin infection that can cause redness, swelling, and warmth, often affecting one limb. The patient's diabetes and peripheral edema increase the risk of developing cellulitis.
Eczema (Nummular or Stasis): Eczema can present with well-circumscribed, raised erythematous patches, and the patient's history of diabetes and edema may contribute to its development.
Contact Dermatitis: An allergic reaction or irritation from substances coming into contact with the skin, which could explain a unilateral, well-circumscribed rash.

Deep Vein Thrombosis (DVT): Although DVT typically presents with swelling and pain, in some cases, it can cause a rash. Given the patient's age, diabetes, and peripheral edema, DVT is a critical diagnosis not to miss due to its potential for severe complications like pulmonary embolism.
Necrobiosis Lipoidica: A rare condition associated with diabetes, characterized by necrotic lesions in the skin, which could initially present as a raised erythematous rash.

Erythema Nodosum: An inflammatory condition characterized by the sudden onset of tender, red nodules under the skin, often on the lower legs. It can be associated with various conditions, including infections and autoimmune diseases.
Granuloma Annulare: A benign condition that can cause a ring-shaped rash, which might appear as a raised erythematous lesion. It's less common but should be considered in the differential diagnosis due to its potential association with diabetes.