I also think it's probably the best way to deal with mealy peaches (or cook them with pork, it's a great combo), but it still won't be quite as good as a version with better peaches. I find mealy peaches are also not that flavorful, which comes out in the final product. But still better than wasting them!
Yes! Mealy peaches are much improved by baking. As long as they have pretty good flavor, they'll be fine in baked goods. Even my well-pedigreed farmer's market peaches are sometimes mealy, and I hate to waste produce -- so every so often I'll make a crisp. I prefer crisps for their forgiving nature and delicious, oaty topping, but i've also made cobblers and buckles, etc out of less-than-stellar stone fruit.
If the peaches are kind of blah tasting in addition to being mealy, you might add some more flavor with berries or a dash of lemon juice.
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If the peaches are kind of blah tasting in addition to being mealy, you might add some more flavor with berries or a dash of lemon juice.