lemon zest substitute
I would definitely use lemon extract over dried lemon peel. According to eHow, use half as much lemon extract. That seems like a lot, but then 1/4 cup of zest is also a lot, and I don't know your recipe so use your best judgement.

You could also use a bit of each. The downside is that extract is VERY strong, and peel can be a bit gritty once it's dried.