How to distinguish nutmeg freshness?
Simple: grate it.

If you grate the nutmeg using a microplane, it should have a strong, distinctive odor you can smell from a couple feet away.   If it doesn't, it's lost its flavor, throw it away and buy new.

It's fairly likely you're going to end up replacing it.  I've never seen nutmegs get moldy before, and I live somewhere with 80% humidity.  It would have to be stored in some very poor conditions to mold.