Thank you everyone. To answer a few questions:
--The fireplace seen under the peg boards is a hideous eyesore that divides the master bedroom and the sitting area. We have never used it once since buying the house so no heat is coming from that.
--There are 3 large windows in the area (it is a hexagon shaped area about 10 by 10 feet). We have the windows covered in privacy rice paper--the kind you get at Home Depot and apply to the windows with water and soap. I also have some corrugated plastic up in some areas where a lot of sun comes in. Yes, there is a lot of daylight but not unfiltered sun.
--The peg board above the tile and the board over the tile are 2 different pieces. We had to do that because the tile extends out from the wall by about 1.5 inches. So the top board is flush to the wall and the bottom board is flush against the tile (my DH used a piece of board to act as a ledge just above the tile that extends out enough to attach the peg board so it is flush against the tile.
--I was wondering if the type of pegs I used was causing the warp?? All the pegs I've seen always create a gap between the item hung and the pegboard (about a half inch or so).
I just don't know what to do and I don't have enough wall space to try hanging these on another wall.