Hey mundasingh123:
Interesting question - and, honestly, I don't think that this is anything they'll test specifically so I'm not too worried about it either way. I've reluctantly learned what "participle" and "gerund" mean over the years, but I could still answer these questions correct 99% of the time without knowing those terms/concepts 5-6 years ago because I focused on the bigger-picture errors that they explicitly do test.
In this case, I actually think that the second one is wrong and the first one is right. "Peter's winning the marathon" gives you two nouns in a row which you really can't have without a transition. You'd probably have to say that "I heard about Peter's winning OF the marathon", which is also really awkward and probably wrong, too, but you need a way to separate those two nouns.
Sentence 1...you know, if I had a choice between:
I heard about Peter winning the marathon
and
I heard that Peter won the marathon
I'd pick #2 every time. In that comparison, the first may actually be wrong because the modifier "winning the marathon" could refer to both "I" and "Peter". Did I hear about him while I was winning the marathon? Or did I hear that he won the marathon? If I had a choice that left this potential ambiguity out of the mix (like my proposed #2), I'd definitely take #2.
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Now, hopefully that explanation doesn't confuse more than it clarifies, but even if it does, I think it brings up an important point about GMAT sentence correction: even the editors at the New York Times struggle with some of this nitty-gritty grammar stuff, and usually if they get to that point they'll just rewrite the sentence entirely. Simply put, it's impossible for a pre-MBA student to become perfect at "all things grammar". The best you can do is:
1) Do the things that you can get good at - the major error categories like S-V agreement, Modifiers, etc. - extremely well, and look for opportunities to use those first.
2) When you're down to a few remaining choices and it seems as though you can't use the major categories, then look at Logical Meaning and Clarity of Meaning - does the sentence make logical sense? Is there room for ambiguity and/or confusion? More often than not thinking logically is much more effective than is trying to break down sentences on a purely grammatical basis. I'd argue that using the words "gerund" or "participle" in your thought process on the verbal section is akin to multiplying a series of 3-digit numbers on the quant section - you could do it, but you're probably working too hard and overlooking an easier way (logic on the verbal; number properties on the quant).
I hope that helps...