As I understand it, Peano arithmetic needs the axiom of induction to prevent non-standard models of the natural numbers.
Given $P(0)$ and $P(n)\implies P(n+1) \forall n\in \mathbb{N}$ I can apply modus ponens to get $P(1)$ and again to get $P(2)$. After 5 iterations, I should have deduced $P(5)$. Is this reasoning correct?
It seems the important part of the induction axiom is that it asserts $P(n)$ for all $n$ in the model, where without this axiom we could have elements not reachable from $0$ by iterated succession.
Does this mean that for any particular "ordinary" natural number that can be obtained by writing $S$ sufficiently many times in my formula, I can deduce $P(S(S(...S(0)))$ without appealing to the axiom of induction?
Yes, you can. To be exact, if you have
$$P(0)$$
and
$$\forall n (P(n) \to P(s(n)))$$
then you can prove $P(S(S(...S(0)))$ without the axiom of induction.
Indeed, even if the axiom of induction would be assumed to be false, i.e. if you also have:
$$\neg ((P(0) \land \forall n (P(n) \to P(s(n)))) \to \forall n \ P(n))$$
you can still infer $P(S(S(...S(0)))$
And this isn't because you can now suddenly prove a contradiction, because as you point out, there are non-standard models in which the axiom of induction is false, but where $P(0)$ and $\forall n (P(n) \to P(s(n)))$ are still true. No, it's simply because you can keep instantiating the $\forall n (P(n) \to P(s(n)))$ to get $P(s(0))$, $P(s(s(0)))$, etc.