In a large bowl, mix peaches, 2/3 cup sugar, and the tapioca, lemon peel, lemon juice, and vanilla. Let stand at least 15 minutes or up to 30 minutes to soften tapioca, stirring several times.
In another bowl, combine flour with remaining 1/3 cup sugar, the baking powder, and nutmeg. With a pastry blender or your fingers, incorporate butter into flour mixture until mixture resembles coarse crumbs. Add cream and stir just until dough holds together.
In a buttered shallow 2 1/2- to 3-quart baking dish, spread fruit level. Using your hands, crumble dough evenly over fruit.
Bake in a 350° oven until fruit mixture bubbles in center and topping is golden brown, 50 to 60 minutes.