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Simon says "while this hero," as a captured hero he is not a hero so his ability does not work.

I'm pretty sure Peter's ability wouldn't work anyway, but he says "heal another clay hero," which means if I'm reading this right he actually has to be a clay hero to heal, which would mean that he can't heal if he's converted to a different brigade with something like a gold shield.

Drrek is correct generally, but to expand TC characters are no longer active when captured, because they are no longer Heroes and Evil Characters, but captured characters (which are different).

On whether Peter could convert in another brigade, I'd be inclined to say that he could, but that is an interesting discussion to be had.