It has been my experience that if a really good match---like with the Stain Putty---is not possible---like trying the color sticks/sawdust and glue/---making the filler lighter is less eye catching. I did several hundred feet of pine crown molding, stained dark walnut. The home owner specificially mentioned he wanted no conditioner---he wanted the color differences from the stain to show. And with even good stain grade pine, there was a LOT of difference. It was in a room with 7' ceilings and a soffit for HVAC in the center the length of the room that was 10" below the ceiling. I used a 16 gauge nailer and had a lot of nail holes to fill. I made up two batches of Stain Putty----one with the dark walnut stain and another with pecan stain. The dark walnut Stain Putty was a perfect match for the darker areas---but would have stood out like a sore thumb on the lighter areas. The pecan was a bit lighter than the light areas and was a fdair match---the HO could not see the filled holes----and he is a professional painter---has owned his own company for 30 years.

Spackle is a generic term. Avoid painter's putty. It doesn't set up, can't be sanded and must be primed with oil primer before painting with latex paints. If not primed with oil, it will turn a darker shade of gray. The best patching compound for wood trim and drywall is MH Ready Patch. Follow label instructions.

The material to use is Vinyl Concrete Patch powder. It's available at all the big box home centers. You can also use hydraulic cement, which is better if you have a high water table and problems with water seeping through the holes. Get as much dirt out of the holes as you can with a vacuum cleaner. If possible, undercut each hole a little with a chisel (make the holes larger at the bottom), but if you can't, don't sweat it. Mix the compound as directed on the container. Don't use too much water. Dampen the inside of the hole with water from a spray bottle. Damp, not sopping. Stuff the compound in and smooth it with a putty knife. Let set. Done.

Instead of painting your siding, have you consider CWF or some other semi-clear stain? Your cedar would naturally age over time and turn a darker color and the side that gets the most sun wouldn't age exactly like the rest of the house but it would be a more natural cedar look. Are the nails galvanized or will they rust? If they're not galvanized, you should probably cover them even if its just with a clear spray paint. Edited to add: follow your inspector's advise. GET OTHER PAINTER'S ESTIMATES THAT INCLUDE PREP. Consider covering the nails a DIY project.