Here are some pictures of the section of window frames that have water and woodpecker damage. How do I go about fixing this? Thanks in advance.
Bondo, the same filler used in auto body repair work. Carefully remove any loose debris, then fill with bondo according to directions. I believe you will have to fill the gap in increments, not all at once, so it will take several applications before you can get it to the final stage of smoothing over and sanding. Finally, prime and paint.
That was started by rot---the right side clearly shows the tell tale indications of dry(really caused by water) rot. While woodpeckers may have been caught enlarging the gaps(I imagine that the foil streamer is a deterrant), the underlting problem is the rot.
The fix can be done(for small areas) with the Bondo. But, if the rot extends much higher, replacing the frame will be a better fix.
I would remove the rotted pieces and check out what's happening under this area. They now have a poly wood alternative which is wood and plastic. I would install this product, making sure the area was sealed against further water damage.
The woodpeckers are there because of the insect activity
If you fix it with Bondo, use a wood hardener before applying Bondo. The hardener toughens up the soft wood around the offending area and it gives the Bondo a solid surface to cling to
That piece which shows the rot is typically separate from the window frame itself. Typically called an end cap or trim board. Held in place with long galvanized nails. If I were doing the job I would simply remove it and replace it. Most likely you will have to get it cut to size for all 3 dimensions. Nail it back in place, bead of silicone around the gaps, paint and you are done.
However, if there's that much rot showing, my guess is you have bigger problems than a trim board to replace.
I suspect moisture is getting in there somehow - check it's flashed correctly at the top and look for other places where water might get in - you need to correct that first. Bondo would work, but it depends on how extensive the damage is.
Replace the brickmold. It's more cost-effective in the long run, since the rot is hard to eradicate, and will continue to grow fungus into the window frames and eventually the framing.
We do jobs like this regularly, replacing the junky finger jointed softwood trim with new wood milled from Spanish Cedar or mahogany.
The trim pieces are(or were at one time) acting like candle wicks and actually drawing water upwards from where it meets the window sill. So why is/was the water sitting in those bottom corners? Looks typical of what happens when storm windows are sealed across the bottom with caulking. Guessing that was the case before you did the replacment windows. Either way, replacing the 1x2 trim is the way to go.