I'm in Washington visiting family and I have to print a few posters, so I asked my friend to let me use his shop and as a thank you I made him this drying rack. I followed Denny's and Tuffy's suggestions and went a slightly different way. The peg board was the most expensive at $16 a sheet, and all together the project cost $125.
I used my dad's Kreg system to drill all of the holes. Seriously a great tool to have in any shop. Google it.
Instead of notching the up-rights, I went with 1x2" blocks to keep the board in place.
It took about a day to build it, but after printing and using it last night, it was worth it. The bull-dog clips on string was fine, but this is just so much easier. Let me know if you have any questions!