I personally go smaller rather than larger in my selection of pegs, Nate. I like 1/2 size violin pegs on most of my builds. I've always felt like many of those pre-Revival dulcimers had 'way too large of pegs for the size of the tuning head and instrument. Probably, as you suggest, because the players had trouble adjusting hand whittled pegs with small heads and short shafts. With well fitting pegs, and experience, the issue is moot. People have been playing small violins since the 16th century.
updated by @ken-hulme: 03/29/23 06:57:08AM
My two Holly Leaf pattern dulcimers shown here have different size pegs. The larger one has full size -- 4/4 - violin pegs and the smaller one has either 3/4 or 1/2 violin pegs, I can't remember which. When I made that smaller scroll head, the full sized pegs just looked out of place -- too big for the size of the head, so I got smaller ones. The same taper reamer that I have works for all sizes of commercial pegs from 1/8 violin up to full size cello and viola IIRC.