Hi Doug- This is a perennial problem and it is very hard to dissuade a determined squirrel. We have Red Squirrels here and they are fairly small and not as strong as the Greys you probably have. I find a good solid hook and the feeder wired shut works fairly well with Reds.
It probably does work. Worth a try anyway. Peppers evolved the ability to make Capsaicin, which is the active ingredient in hot peppers to dissuade animals from chewing up the pepper seeds and thus destroying them. However, capsaicin is cleverly designed by evolution to not affect birds. Birds are important to peppers (and many plants) because they swallow the seeds whole, then poop them out somewhere else, thus dispersing the plant.
I had the same problem of having squirrels devour the suet before the birds could have a go at it. So I figured that if birds eat hot peppers they most likely have a poorly developed sense of taste for pepper or they have no taste buds at all. So I coat the suet with cayenne pepper by sprinkling it on liberally and rubbing it into the cake before hanging it up and it seems to work. I have seen the squirrels try to eat the treated suet and quickly back off rubbing and cleaning their mouths with paws and retreating rapidly. The coating wears off over the week and may have to be topped up. This is all a bit of extra work but I have lots of birds visiting.
Dont sprinkle the pepper while the wind is blowing or you will have burning eyes in no time.
It would be nice if the manufacturers of suet would impregnate the cakes with pepper or capsaisin. BTW if you rub capsaicin on your painful joints it really helps for a few days.