Aside from the usual "well forget him if he doesn't want to be here"/"I didn't like him anyway"/"he's only three stars" typical responses, I think this story sheds some light on a large problem area for the team - at least in the opnion of the coaches.
Peace has, largely, been a WR in his HS career. During summer camps, he impressed lots of people - Michigan included - with his receiving ability but also his play as a defensive back. Michigan offered him thinking he could do either - play WR OR CB. Throughout the process, Peace made his desire to play WR pretty clear, and Michigan went along with it.
Now, we hear that the primary reason for his decommitment was because Michigan now really wanted him to play CB, not WR. Clearly, if Michigan was still recruiting Je'Ron Stokes and Travante Stallworth at WR, they were not overly enamored with his ability to play WR. So, as a WR, losing him is likely not a tremendous blow.
However, lets look and see what's happening elsewhere:
-*****Dre Kirkpatrick isn't coming.
-****Jayron Hosley has publicly stated that he really doesn't want to live in the cold-weather.
-***Demontre Hurst doesn't want to visit as long as we don't have a DC.
-***Mike Edwards goes to Glenville, who hates us.
-***Mywan Jackson, pretty much committing to UNC today.
-**Adrian Witty is a two star (yeah, I know Pat White, David Harris, blahblahblah - most 2-stars don't become anything), and seems like he's largely contingent on us getting Denard Robinson, anyway.
So, that's EVERYONE we have offers out on (per Rivals). So it seems like Michigan's desire to have Peace play CB in an act of desperation - he was the last line of defense (barring snake-oil) between us and a two-star/unrated guy. Clearly, given the number of CB's we've pursued, the staff sees CB as a need, and their attempt to convert Peace speaks further of that need.
So, I don't see this as losing a WR, which doesn't matter, because we have plenty. I see this as losing a CB - a position of need, no matter how you slice it.