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We investigate the interaction between superconductivity and defect-induced d0 ferromagnetism using a composite consisting of MgB2 and MgO nanocrystals. The composite exhibits a ferromagnetic hysteresis behavior in the temperature region from 40 to 300 K. Defective MgO nanocrystals (~20 nm) embedded in the composite are considered to be responsible for the observed ferromagnetism. The zero field cool and field cool magnetization curves show that the superconducting transition occurs at Tc = 38.6K, in agreement with Tc of pure MgB2. In the temperature region from Tc to 0.9Tc (~35 K), the magnetization hysteresis curves show a superposition of ferromagnetic (F) and superconducting (S) signals. When the temperature of the system is decreased below 0.65Tc (~25 K), the S signals dominate over the F signals. The resulting magnetic hysteresis loops are highly asymmetric and the descending filed branch is nearly flat, as predicted in the case of surface pinning. At temperatures below 0.5Tc (~20 K), a sharp peak is developed near zero field in the magnetization hysteresis curves, implying an enhancement of superconducting vortex pinning. The observed pinning enhancement most likely results from magnetic pinning due to randomly distributed magnetic MgO grains, which yield the magnetic inhomogeneity and the related pinning potential in a length scale of ~100nm. Thus, the present ferromagnetic/superconducting composite provides an ideal model system that demonstrates the availability of d0 ferromagnetism as a source of magnetic potential for effective vortex pinning. [ABSTRACT FROM AUTHOR]