I was wondering if the USB TTL cable is totally necessary for programming the Peggy 2.0?
I already have an Arduino board, and was wondering if I can just toss the ATMega168 from the Peggy into the Arduino board and program it that way? I realise the TTL cable would be easier (less transporting), but I was curious.
Also, do the instructions that come with the kit show how to set up the Peggy 2 for USB TTL programming?
Thanks!

The Peggy 2.0 can be programmed (1) by using the USB-TTL cable (2) by using an AVR ISP programmer (such as the USBtinyISP), or (3) by taking out the AVR and programming it in an Arduino board (as you describe). The ATmega168s in the Peggy 2.0 and in a Diecimila are (I think) interchangeable in every respect, which means that you can just swap them out. (It isn't necessary to take the chip out of the Peggy, take the chip out of the Arduino, program the Peggy chip, and put it back, and then put your Arduino chip back in your Arduino board.) But, much much better than swapping out chips-- because chips get damaged that way-- is to *use* your Arduino board as an ISP programmer. Check it out!

Oh that's great news!
I just ordered two Peggy 2.0's and am eagerly awaiting their arrival.