I use the octagon pegs all the time now... I use table saw and then a router table w/champfer bit and I find that the pegs don't have to be perfect octagons to work, but they do need to feel right when driven into the hole... this is an efficient way to make pegs, but watch out for bad grain, pegs should always have straight grain.
there was a thread a while back where someone suggested starting with square stock at .95% of hole size...