First of all, a flag as people understood it in the past and still understand it today is a graphical representation of historical and moral values shared by a group of people, be it a nation, an organization or a church. They're usually linked to a specific territory. A flag has to be accepted by some form of (a centralized) government or at least a majority (or be forced upon a group of people, as it happened countless times in history). New flags, like the flag of EU, are more of an advertisement really. Since BitCoin is an ex-territorial, decentralized form of money minted (mined) by individuals, no symbol will become a flag unless it is accepted by miners and users, hence the BTC symbol - there are two: the Dollar-like B and the #B. Even though the Dollar-B is being used more frequently, there is still no agreement in the community on the currency symbol.
I personally like the #B symbol better, because it emphasizes the mathematical foundation on which the BTC is based and doesn't send out a "something like Dollar" or an "anti-Dollar" message, but rather a "completely now quality" statement.
Lets look at the symbolism for a second. There was and is no need to die for BTC, no bloody red then. No need to declare a war against anyone (the enemies will defeat themselves :-) ), no need for black. No connotations with nature - no green. The commonly used colors we've got left are: blue, white and yellow. Blue stands for freedom, reason, prosperity. White stands for innocence and purity, transparency. Yellow represents wealth and justice.
My proposals are square, because I find it more "perfect" than a rectangle (even in golden proportions) and it can be used both ways, that is as a conventional flag-on-the-rod and as "old combat style" flag. I used mainly blue and white, because I find BitCoin has more to do with mind and intellect than any other currency. Yellow and gold are used as the advertisements and "good luck charms" really. The circle and a disk, through their resemblence of the sun (gold) is instantly associated with money, but also symbolizes the rotation of BTC (and is a wink to central banking). They're all very simple. A flag has to be easily memorializeable and recognizable from afar. The middle one (white disk on blue background) is my personal favorite.
http://i43.tinypic.com/20ft5i.pnghttp://i44.tinypic.com/2a608di.pnghttp://i40.tinypic.com/jkzqs9.png
