I can understand that, and I don't disagree that your approach is a very kind and neighborly one. The world might be a better place if everyone was willing to avoid doing all the things that would offend the people around them, but I suspect that would be very difficult for most people. My question is where do you think people should draw the line? Obviously for you the question of whether the flag should be displayed is an easy one. It is considered offensive to many people, and so no one should display it. There are other things that are also considered offensive to many people. There have been neighborhoods where people were offended that others had visible Christmas decorations in their homes or yards. Does that mean that no one should display anything signifying Christmas? The cross, the menorah, various Holy books, the Darwin fish symbol on cars, the "Blue Dot in a Red State" bumper stickers, the pro-life or pro-choice stickers, gay pride flags . . . there are so many things that are embraced by one group but cause offense to another group. Plus, it isn't always just symbolism - I know people who are horribly offended by the presence of foreign cars in their community because they blame them for their community's current economic problems. Does that mean everyone in the area has to buy American cars just to keep from offending their neighbors? Obviously some of those examples seem trivial, but that's my problem with this. Where should the line be drawn? I can completely agree that it's horrible to display something that is intended to be hurtful to those around you. But when something has a positive meaning to you, should you always have to set it aside or hide it because it has a different meaning to someone else?
My personal opinion is that the woman in the OP wasn't doing anything wrong by displaying the flag as long as she didn't mean it in a racist way. I think she massively crossed the line when she moved it to ensure that her neighbors couldn't avoid seeing it.