In the Viewpoints section of the U-B on March 15, Barbara Dickerson expressed concern over a flag with Obama's image on it.
I'm a collector of political campaign memorabilia. There are plenty of examples of past presidents and presidential contenders who have had their images or names placed on the American flag in a similar manner to the "Obama flag".
Abraham Lincoln, Ulysses Grant, John Breckenridge, James Blaine, Rutherford Hayes, Grover Cleveland, William McKinley, Benjamin Harrison and James Garfield are early examples. And while not quite as overt as having an actual flag made, there are plenty of examples of every presidential contender since the early 1900s, including Reagan, Kennedy, G.W. Bush, Palin, Dole and Clinton with their pictures or names printed on flags and used as a political campaign button or brochures.
Political groups such as the tea party have altered the American flag in a similar manner, placing their logo in the caton/union area of the flag.
Google images: "political campaign flags" or ‘"tea party flag" to view some examples.