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Using just titebond glue.
Allow 24hrs dry time.
Cant help myself, going to get rid of that plastic and fix that hole as well (not part of this walk through).
Using a bobbin sander we shape the insert.
Follow up with some hand sanding using 220 grit.
Peg hole reamer, to put a taper back onto our insert
Just by hand pressure alone is enough
Some follow up stain for the other mess.
Turn that block into a round bushing.
Check fit..
Glue and tap the bushing home..
Airbrush is your friend, I am going to make this area a tad darker because the insert has end grain showin, also the 5th nut repair needs to be hidden.
So we cut a square block out of the wood blank
Press the new 5th peg home as per attached walk through.
Job Finished.
Bushed hole, fixed 5th nut hole, new bone nut 5th fret.