Andy,
The gap is a common occurance in these types of mini bikes, do to them not using any bearings in the neck. Also as they get ridden a lot, they tend to ware at the bottom of the neck causing a gap. If it is not to bad, you can just tighten down the bolt that go's through it. But If there is a bug gap, see if you can find a good brass washer to fill it.
As far as the pegs go, I think it was way to dangerous to ride with sold pegs. So I had them cut off flush and welded in nuts so I could install a pair of aftermarket pegs that flip up. So if I lean into a corner, I don't pogo in the air.
We just rolled the handle bars forward real slow so that they did not crease, it did not take much to get them there. It was well worth it, for the comfort of riding.