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[Niccolo]

Nah, it wasn't that which confused me. I've never heard sod called turf, actually... sod isn't really a word one encounters too often except in reference to Sod's Law (Brits' name for Murphy's Law).

I didn't realise that the peat actually doesn't really decompose down into something approaching soil (Since dead organic stuff lying around for three millenia really should), instead drying into... seriously? Layers of extremely dense dead moss? Bloody hell, you can't make this stuff up.

It doesn't really help that the pictures of peat harvesting look an awful lot like bigass cubes of dirt...

[Reelya]

It's simple to mod Peat to be collectable like clay and sand, and use custom reactions to turn it into fuel.

See the Chemistry mod in my .sig for that, it's in a sub-folder, it adds collection of Loam and Peat, with specialized uses (loam for constructions or bricks only, peat for fuel)

[SethCreiyd]

Great link on the subject:
http://www.lowtechmagazine.com/2011/09/peat-and-coal-fossil-fuels-in-pre-industrial-times.html

They mention both that forging with peat was possible and that smelting wasn't possible with it, or at least not done.

That's not entirely accurate:  It's possible and historic to use peat for smelting and forging alike, but peat was wholly replaced by coke during the Industrial Revolution.

Because of its lower sulfur content, peat did not have these limitations. The Dutch could use it for almost all thermal processes in their industries. Over time, however, the English managed to adapt their industrial processes for the use of coal instead of wood and charcoal. With every step they took, the English slowly caught up to the Dutch.  A turning point came at the dawn of the eighteenth century when the last - and most important - industrial process was converted to coal: the production of iron.

This last step, made possible by the introduction of 'cokes' or purified coal, marked the start of the Industrial Revolution in the Western world. [...] Turf, on the other hand, could not deliver the intense heat produced by coal, and hence was not used in iron production, nor to power steam engines. 

That's not to say peat is particularly good for smelting.  Here's a wall of text from "Peat and its Uses as Fertilier and Fuel", published 1866, emphases added:

Spoiler (click to show/hide)

- Peat can only be employed to advantage, when wood and mineral coal are expensive, or of poor quality.
- Peat can be used in furnaces adapted for charcoal, but not in those built for mineral coal.
- Good air-dry peat, containing 20 to 30 per cent. of water, in some cases may replace a share of charcoal in the high furnace.

[...]

When the ore is refractory and contains impurities that must be fluxed and worked off in slag, a large proportion of air-dry peat cannot be used to advantage, because the evaporation of the water in it consumes so much heat, that the requisite temperature is not easily attained.

At Achthal, in Bavaria, air-dry peat was employed in 1860, to replace a portion of the fir wood charcoal, which had been used for smelting an impure clay-iron-stone: the latter fuel having become so dear, that peat was resorted to as a make shift. Instead of one "sack," or 33 cubic feet of charcoal, 24 cubic feet of charcoal and 15 cubic feet of peat were employed in each charge, and the quantity of ore had to be diminished thereby, so that the yield of pig was reduced, on the average, by about 17 per cent. In this case the quality of the iron, when worked into bar, was injured by the use of peat, obviously from an increase of its content of phosphorus. The exclusive use of air-dry peat as fuel in the high furnace, appears to be out of the question.

At Ransko, in Bohemia, kiln-dried peat, nearly altogether free from water, has been employed in a high furnace, mixed with but one-third its bulk of charcoal, and in cupola furnaces for re-melting pig, full-dried peat has been used alone, answering the purpose perfectly.

The most important metallurgical application of peat is in the refining of iron. [...]  In the high furnace, peat-coal, when compact and firm (not crumbly) may replace charcoal perfectly, but its cost is usually too great.

When peat or peat-coal is employed in smelting, it must be as free as possible from ash, because the ash usually consists largely of silica, and this must be worked off by flux. If the ash be carbonate of lime, it will, in most cases, serve itself usefully as flux. In hearth puddling, it is important not only that the peat or peat-coal contain little ash, but especially that the ash be as free as possible from sulphates and phosphates, which act so deleteriously on the metal. The notion that, in general, peat and peat charcoal are peculiarly adapted for the iron manufacture, because they are free from sulphur and phosphorus, is extremely erroneous. Not infrequently they contain these bodies in such quantity, as to forbid their use in smelting.

In the gas-puddling furnace, or in the ordinary reverberatory, impure peat may, however, be employed, since the ashes do not come in contact with the metal. The only disadvantage in the use of peat in these furnaces is, that the grates require cleaning more frequently, which interrupts the fire, and, according to Tunner, increases the consumption of fuel 8 to 10 per cent., and diminishes the amount of metal that can be turned out in a given time by the same quantity.

[...]

What is to the point, in estimating the economy of peat, is the fact that while 6.2 cubic feet of dry fir-wood were required to produce 100 lbs. of crude bar, this quantity of iron could be puddled with 4.3 cubic feet of peat.

In the gas furnace, a second blast of air is thrown into the flame, effecting its complete combustion; Dellvik asserts, that at Lesjœforss, in Sweden, 100 lbs. of kiln-dried peat are equal to 197 lbs. of kiln-dried wood in heavy forging. In an ordinary fire, the peat would be less effective from the escape of unburned carbon in the smoke.

In other metallurgical and manufacturing operations where flame is required, as well as in those which are not inconvenienced by the ingredients of its ash, it is obvious that peat can be employed when circumstances conspire to render its use economical.

http://www.gutenberg.org/files/26142/26142-h/26142-h.htm

Considering the ease with which dwarves produce high quality coke and steel, it seems likely they'd know how to use peat, even if it were a poor preference.  I can picture a dwarven smelter turning his nose up at peat-coal because it's just not as good as coal and needs to be specially prepared.

[Silverionmox]

Sure. The thing is, peat is found in swampy, moist areas: it's likely that there's an aquifer or other water problems digging downwards, so it's a nice alternative fuel source for those in need.