I could be insect damage that allowed a fungus into the pod. Cut one open and see what's inside.

Hey

Thanks. There are tiny little holes on the outside of the pods and cutting them open they look bigger and moldy on the inside. A little like a pimple.

Does this sound like bug damage?

What can be done to stop it?

Some photos

more

outside

outside

Also, we have lots of fruit flies on our mango tree, could they be the culprits?

You're in Australia. Sorry, I don't know the fauna down under.

Its called Bacterial soft rot.
Had that last year.. It sucks. Had to kill 2 plants " 1 Pepper and 1 Tomato " to keep it from spreading. Sorry to say but I think your infected pepper plants are done for.

Click on link to the wiki page to read up on it.

Here is a link that might be useful: Bacterial soft rot.

Those dots look like some sort of insect damage. That could also be the entry point / source of the rotting.

Here's another good page to check out

Here is a link that might be useful: NM State Chile Pepper Diseases

I think it can be controlled. I bought a scotch bonnet plant last year that was like that all the fruits were soggy and quick to rot after being picked. Not sure what it was, I suspect the plant was watered too much and grew too fast - the whole plant was too soft and too green. I left it in harsh summer sun for a while (where I live summers are dry and the sun scorching) so much that it dried out, lost all its leaves and the end of its branches fell off.

This summer I am watering it generously and its getting a few hours of strong sun a day, it grew back into a healthy, stronger plant and my chilies are firm and turning yellow to orange, however I found just one that was slightly soft which I removed.

So my suggestions are remove the soft ones, let the plant have a decend dose of sun, maybe spray some organic mix such as soapy water.