Looks like rot to me. The soil looks really wet under the mulch, I think they maybe gonners at this point :( but you never know, they may survive if you support them, though I would not keep my hopes high, and wouldn't expect much production out of them if they do. You may be better off just pulling them and getting some new transplants to replace them. In 6b you have enough time still to put some new ones in.

Thank you for the input.
I'll probably just yank them and plant again.
Feels a shame to do so with all the blooms and little peppers coming on, but better safe than sorry.

Plant a few more for a back-up and support the current ones in case they recover. Keep the mulch a few inches from the stems. Mulch up against the stems may have contributed to( or caused)the rot.

It could be disease, or it could be mechanical damage from something chewing on it.

If you apply some rooting hormone powder above the bad area, then mound up moist soil against the stem and keep it moist, it should grow roots from above the damaged area. That and stake the plant to prevent it from breaking could probably save it.

You're committing a sin of vegetable gardening - using wood mulch. Robs nitrogen from your garden and could even be contributing to the rot on your plant stems.

Ok, educate me on the mulch deal.

Ive been told that hardwood bark mulch is good at keeping down weeds, and can later be tilled into the soil to add some organic material.

Miller, I would say sin is a bit excessive... Lol

Wood mulch is not the best idea as a mulch though because it requires nitrogen to break down as it rots, s you wind up having to use more fertilizer to compensate. I believe there are other negative aspects, but I would not say its the worst thing in the world. Personally, I use straw (not hay) because it breaks down easily and adds good tilth to the soil. It also suppresses weeds nicely, and is very cheap.

Hardwood mulch stinks. Especially if it touches any plant being mulched. No mulch should be within a couple inches of the stem. Hardwood mulch draws nitrogen from the soil and often harbors fungus. Straw, finished compost and grass clippings are much better choices.

One of my best garden beds is a strip roughly 15 feet wide and 75 feet long that was home until June 2009 to a row of 8 large, mature white spruce trees. They became old and dangerous, suffered some storm damage, and I had them taken down and ground up. I had the tree service leave the chips, then put my plow blade on my SUV and leveled them out. They ended up covering the entire are to an average depth of probably 8 inches, although in some spots, to make it more level since it had been sloped, they were probably twice that deep. I just planted directly into them after they had settled and rotted.

Things grow great in there. I do fertilize it extra heavily to make sure plants get enough N. I have been planting potatoes, broad beans, garlic, leeks, artichokes, and even melons in this bed, along with various flowers/ornamentals.

Too bad I won't be able to ever repeat this, as I don't have another row of large trees to take out and have chipped.

I often use hardwood mulch and have no problems with it in the garden. The issue with nitrogen happens if you till it in your soil. I don't. When you have a layer on top of the soil it does not wick up all the nitrogen out of the soil. It is hot and humid enough here that by the time I am ready to till the garden I have almost no recognizable mulch left. I rake what is left to the side and then till.

It it true you don't want it touching the plant. That is true of all mulches.

Here is a link that might be useful: Adventures in Agriburbia