Toss lamb with 2 teaspoons salt; set aside.
Toast peppercorns, dried chiles, cardamom, cloves, and cumin seeds in a large Dutch oven or pot over medium heat for 5 minutes, stirring occasionally.
Transfer spices to a blender with vinegar, ginger, tamarind paste, and turmeric; blend, scraping down sides as needed, until smooth.
Add spice purée to lamb and toss to coat; cover and refrigerate for 4 hours (or set aside at room temperature for 1 hour).
Heat oven to 325ºF with rack set in lower-middle position.
Heat oil in now empty Dutch oven over medium-high; cook mustard seeds and cinnamon until seeds pop, 1–2 minutes. Reduce heat to medium and add onion, garlic, chiles, and sugar; cook until onion has softened and starts to brown, about 8 minutes.
Stir in lamb along with marinade and 1 cup water (or white wine). Bring to a boil. Cover pot, transfer to oven and cook until lamb is tender, about 1 ½ hours.
Using wooden spoon or rubber spatula, scrape any browned bits from sides of pot and stir into sauce; stir in bell pepper, if using, and let stand, uncovered, for 10 minutes.
Skim and discard grease from surface of sauce. Season vindaloo with salt to taste and serve.