Woodpeckers Drilling into House
Thank you for your inquiry.
Your problem is a tricky one. Woodpeckers create holes in dead wood for 3 main reasons: searching for food (insects) or 'drumming' - calling to other woodpeckers. Both of these activities may result in many small holes or dents. The third reason is excavation for a nesting or roosting site, which would result in one large hole. Unfortunately woodpeckers don't distinguish wood siding from dead tree branches; to them, dead wood is dead wood.
The Cornell Lab of Ornihology has a great page on woodpeckers and damage to siding. You may want to take a look to get some ideas of ways to deter this actiity on your home. The publication can be found at http://www.birds.cornell.edu/wp_about/ There's actually some good data that coorelates house color to the amount of damage on cedar siding (see the page on Types of Damage Specific to Siding).
If after reviewing this publication you have additional questions, please feel free to contact me again.