Chaim,
I agree with most of what you wrote, but I would still disagree about the flag.
The very issue with the flag was that zionist nationalism was being seen as a replacement for authentic Judaism. Our flag is Torah and mitzvos, not some symbol of a secular government.
The fact that it’s seen as a “more general symbol representing the jewish people” is exactly what the Rebbe was afraid of. We already have 613 flags of Judaism (“מצוינים במצות”), no need to add secular ones to the bunch.