I really think nn's are open choice - as long as the child doesn't hate it, then it doesn't matter. You could use Dancer as a nn for
Margaret for all I care. It's not the legal name, so it's just for fun.
I personally don't like
Peggy, because I don't generally like p and g sounds, and it's too much like the word "peg", which has connotations of limitations. (as slang, "to peg someone" means to classify or fix, and there's the phrase "to take someone down a peg")
I don't think
Teddy and
Peggy are too close, after all they're just nn's and probably wouldn't be used all the time by everyone.