That is powdery mildew on your squash plants. If the soil is bone dry while the pepper plant is wilting yes it is under-watering. But the same wilting affect can be the result of other problems including over-watering.

Biology Several races of Xanthomonas affect peppers. The organism survives in the soil on infected plant residue and on some weed hosts. It is also seed borne. It can be present on greenhouse surfaces, trays, and equipment which are not properly sanitized. The bacteria can enter the plant through stomata and wounded tissue. High humidity and moisture encourage disease development. Period of Activity Transplanting through early flowering and fruit set. Bacterial spot prefers temperatures of 24- 30�C (75- 86�F). Abundant rainfall and high humidity aid infection. Scouting Notes Disease symptoms can appear in the greenhouse during transplant production or in the field. Once symptoms appear, it is difficult to manage this disease. Fruit lesions are not always present. Symptoms often appear different depending on the race of the bacteria, the pepper cultivar, or the growing conditions. Thresholds None established. Management Notes This is a very common disease, which can appear throughout the season, but is of most concern the earlier it appears, as it will have more time to cause economic damage. Use disease-free or disinfected seed. Do not plant diseased or unhealthy transplants. Avoid working in fields when foliage is wet. Some pepper varieties have tolerance to some races of this disease. A preventative program using registered fixed copper fungicides can reduce disease problems if used during transplant and early field production to keep bacterial populations low. Overhead irrigation and wind-blown or splashing water can spread the disease.

I thought it might be something wrong with the roots, too, because the whole plant from stalk to leaves looks weak. I haven't used anything chemical in my garden or yard, though. The only fertilizer I used was some E.B. Stone 4-5-3 vegetable food during transplanting. That was about 3 weeks ago. I just remembered that I was using one pair of scissors to harvest some basil and prune the tomato plants. I then used the same pair to snip some leaves off of the bell pepper plant because some of its leaves were shriveled. Could cross-contamination be this deadly to just one plant and not everything else the scissors touched? Gardening is not as easy as I thought it would be... :-)

BUMP. Any opinions, comments ? Come on guys ! To, it is related to growing conditions: -- nutrients, light intensity, temperatures. I had exact the same condition with SOME of my pepper seedling last winter, growing under light. How many hours of light ? how close to the plants ? what is the room temperature ? Seysonn