If Aero Peek is disabled in System Properties | Advanced | Performance | Visual Effects, then re-enabled, it will not resume working.
Problem isolated to registry setting HKEY_CURRENT_USER | Software | Microsoft | Windows | DWM | EnableAeroPeek = 0, when it should be 1. Manually setting it to 1 using RegEdit.exe fixes the problem.
(OPTION FOUR) Aero Peek - Turn On or Off
Symptoms: all Aero features work except Aero Peek. Hovering mouse over translucent "show desktop" rectangle in bottom-right of screen fails to show desktop. Likewise taskbar aero peek actions don't work.
Replication scenario: In Control Panel | System | Advanced System Settings | Advanced | Performance | Visual Effects, select "Adjust for best performance". After taking effect, re-enable by selecting "Adjust for best appearance". Note Aero effects resume, except for Aero Peek. Temporary solution: make above registry change.
Configuration details: see profile