From the peggy2 schematic:
Populate ONLY (JP1 and JP2) OR (JP3 and JP4).
Select: JP1 and JP2 to enable the "serial hack"
or
Select: JP3 and JP3 for exact compatibility with
Peggy 2.0.
I'm guessing you are using the "serial hack" to allow programming Arduino-style? If true, perhaps you have JP1 & 2 shorted and JP3 & 4 open? If so, then your code is using the wrong Arduino pins. As already mentioned, Arduino pins 0 & 1 are used for serial programming with Arduino. With those jumpers set, i think you should be using PC4 & PC5 which are A4 & A5 Arduino pins. Or maybe you don't have any of the jumpers shorted?