**Core Concept**
The clinical presentation of a large, grey-blue lesion on a 1-week-old infant's buttocks suggests a possible congenital condition, specifically a birthmark. Congenital melanocytic nevi (CMN) are benign growths present at birth, often appearing as dark brown or blue lesions.

**Why the Correct Answer is Right**
The most likely diagnosis in this case is a congenital melanocytic nevus, which is a type of birthmark. These lesions are usually benign and do not require immediate treatment. In fact, surgical excision is generally not recommended unless the lesion is large, atypical, or growing. The key is to monitor the lesion for any changes in size, shape, or color, as this could indicate a potential malignancy. The lack of warmth, tenderness, or trauma history further supports a benign diagnosis.

**Why Each Wrong Option is Incorrect**
* **Option A:** Immediate surgical excision is not the recommended course of action for a congenital melanocytic nevus, as it is generally a benign condition.
* **Option B:** A biopsy may be unnecessary for a congenital melanocytic nevus, as the clinical presentation and histological characteristics are well-established.
* **Option D:** Topical corticosteroids or other treatments are not typically indicated for congenital melanocytic nevi, which are benign growths.

**Clinical Pearl / High-Yield Fact**
Congenital melanocytic nevi are benign growths present at birth, but they can potentially develop into melanoma in rare cases. Monitoring the lesion for any changes in size, shape, or color is crucial to prevent potential complications.

**Correct Answer:** C.