Many natural substrates pose problems in captivity in that the skink is in constant contact with the substrate 24 hours a day with no option to move off it and on to something that suites his needs better at that time. The Peat Moss that you are using, has lots of very small particles and dust. There is really no way to keep it moist enough to keep him from getting it in his eyes, noes, and mouth edges when he is digging around in it. The same is even more true for sand. There is also a big concern about humidity levels getting too high with the use of peat moss in some types of enclosures (especially regularly misted peat moss). In regard to humidity, sand is the opposite, often creating too dry a situation (again depending on the type of enclosure that is used). Here are a few substrate suggestions and ideas.
There are many different opinions on the subject of substrate. I have personally tried many of them myself, and I have found that newspaper, Care-fresh, and artificial-turf have all proven to be effective substrates for me. Cypress mulch is also frequently used and recommended by many keepers. Aspen Bedding has been used by many hobbyists, but it contains long sharp slivers can work their way into the skinks nostrils, eyes, or vent, causing serious injury. It is also hard to keep it out of the skinks food, and can cause very serious problems when ingested. I also avoid orchid bark for the same reasons and because of the possibility of respiratory and skin problems as a result from the red dust that it produces. Note: Never use cedar chips due to the toxic oils that they secrete.
Blue-tongues will often burrow in their substrate if given the opportunity (especially when kept in a glass tank). They do this simply out of convenience, in an effort to get under something and out of sight from potential dangers. Blue-tongues are not burrowing lizards by nature, rather they are opportunistic shelter seekers that do not need a substrate to burrow in if given appropriate hides and an enclosure that provides them with some sense of security.
Sand is also not recommended, mainly because it is very hard to maintain. Blue-tongues can be very messy lizards, causing the sand to have a very unpleasant odor in a relatively short period of time, and it is just not practical to replace the sand as often as you will need to. It is often pointed out to me that sand is often encountered in the wild by many blue-tongue species. However, that does not change the fact that it can get into your skinks eyes, nose, and food, unnecessary causing potential health risks to your skink. The reason for this is that in the wild the skink is not forced to be in constant contact with the sand 24 hours a day, for its entire life, as it would be in captivity. Let me try to explain. Many of the lizards from the south-western United Stated come in close contact with many different Cactus species. However, cactus is not the best choice of cage décor for these lizards in captivity. The point is, just because something is encountered in the wild, does not automatically make it beneficial in captivity. In captivity we should try to duplicate the beneficial aspects of the wild while decreasing the dangerous and rigorous aspects that the wild also presents.