This is probably the second most common problem that appears in hedgehogs,
but is far less worrisome than mites.

Some hedgehogs develop what looks to be tattered, ragged, or fringed ears,
rather than the smooth round edges that are normally seen.  The edges of the
ears end up looking like a ripped piece of paper, as if something has been
chewing at them.

First of all, in almost every case, what you are seeing is a waxy buildup on
the edges of the ears, rather than the ear itself being ragged.  That means
that cleaning it off, and solving the problem, will restore your little
friend to his normal healthy round ears.

The other good news is that it doesn't appear to adversely bother hedgehogs
who have it.

Recent research seems to point to a number of possible causes for this
buildup, with fungus being the most likely and most common.  That said, there
is no single cause which always is the reason.  Most likely it is exaberated
by some minor dietary problem (either too little or too much of something),
but the problem often occurs in only some animals getting the same diet as
others.  As noted, the most common trigger/cause seems to be due to fungus,
while other cases are traceable to mites, but it has also been found in
animals that have been tested and found to definitely have neither -- in such
cases dietary supplements seem to solve the problem.  Among the suggestions
I've received on dealing with it are:

    (A) Probably the best solution to the ragged ears comes from Dawn 
    Wrobel, who has had excellent success treating the problem with 
    Panalog (antibiotic/antifungal cream), or with Panalog mixed with 
    Ivomec, which cleans the ears up quite quickly, and seems to prevent 
    reoccurances.  This cause/treatment has by far the most research 
    behind it, and seems to be the most effective, overall.  The other
    suggestions, below, offer help in keeping it from coming back.  

    (B) Adding vitamins to the diet
    -- Nathan Tenny

    (C) Similarly, adding Cod Liver oil, Linatone, or Ferritone to the food:

    [Our veterinarian] suggested we try the cod liver oil for two weeks
    just to see what happens.  Bandit seems to like it (which is such a
    surprise since he is the most finicky eater!!)
    -- Melissa Maloney

    (D) Using either mineral oil, isopropyl alcohol (carefully), or possibly
    commercial ear cleaning lotions.  (though this obviously doesn't solve
    the cause of the problem).

As noted, ragged or tattered ears can also be caused by mites, even in
hedgehogs which have been thoroughly treated against them.  The problem is
that the bloodflow to the ears is limited enough that medications such as
Ivomectin, given either orally or by injection, just don't get to that area
in adequate concentrations to completely get rid of the mites.  The solution
can be to use it topically, on the ears directly (after softening and
removing the waxy buildup).

Tiffany Mross also passed along the following suggestions on cleaning up
tattered ear buildup, after some discussions on the hedgehog mailing list
about using cocoa butter:

    There is a product called Lansinoh. It is medical grade purified Lanolin 
    and mothers can nurse without washing it off.  If it is safe for newborn 
    babies to ingest, I would think that it would be ok for hedgies as well. 
    It seems to really aid the healing of dried, and damaged nipples. It also 
    works great for chapped, lips and other skin abrasions.  
    -- Tiffany Mross

While not something that has been tested (to my knowledge), it certainly does
have enough promise to warrant looking into.