Ngjockey, The pegboard could be damped by either its natural internal friction or by a sheet of something laminated or layered with it. If the holes are 1/4", it will pass frequencies above about 50,000hz, clearly in 'Bat' territory.
Either way, it will still reflect and the OC705 behind it will be wasted.
Why just cotton? It will absorb moisture and be more sunfade prone. A good poly synthetic will have acceptable acoustic properties while having a better, longer lasting finish.
I think Spaz needs to answer a few questions, starting with what he wants to make.....Reflector/diffusors? Absorbers or some kind of single frequency resonator? Is his room Too live? Boomy? Shrill/glassy?
When I start down this path, I've already found a source for 2" OC703 and a selection of fabric covering and a Very open white scrim to prevent fiberglass bleed thru. I would like to find an upholsterer to do the finish work and make a complimentary drape set. WAF, you know! I won't even buy a nail until I know what I want to make, how many and how to keep it neat.