Hi Annie. First I commend you for your 2+ years in the Peace Corps. This is something that you should definitely try to highlight, as it will have at least two benefits:
1) It shows your commitment to a cause, which should help combat the potential of you being seen as a dilettante.
2) It's a great differentiator from other applicants -- most won't be able to reflect on this type of experience.
With respect to your fragmented experiences... You should know that admissions committees are very aware of the situation with dot coms over the last several years and therefore are not quick to dismiss applicants who show a record of jumping from job to job.
Couple things to think about:
1) Try your best to provide a consistent theme with regard to your job experience, in terms of what positions you selected and perhaps more importantly with regard to your future career goals. If you can weave a consistent theme then job-hopping will be less of an issue.
2) A functional essay is a good idea (especially if your experiences truly appear unrelated without this style)
The question about months vs. years. I don't think it will make much of a difference either way. If you have a choice, I'd use the method that most accurately reflects what occurred. Just make sure to provide succinct reasoning for why you left the position.