We met with the GI doctor today, and she believes Katie has a milk-protein allergy, but not one that is severe whatsoever.
She said that it is by no means to a point in which I need to restrict my diet anymore than I already have. In addition, and most importantly, she said that despite the fact that there has been blood in her diapers, the benefits of breastfeeding far outweigh anything else. She said that truthfully, she doesn't care that there have been trace amounts of blood - its not enough to be concerned about and does NOT want me to quit b-feeding.
We did talk to her about my conversation with the lactation consultant, and she didn't necessarily buy into the idea that I have a milk imbalance...however, I think we have already seen a difference in her diapers, so I will continue to follow the LC's recommendations, along with restricting my dairy intake. Bottom line is that it can't hurt to do both.
As far as we are both concerned, this chapter is finally closed. Katie is healthy as can be and that is all that matters!