The correct answer might now be "not with the naked human eye" (through an optical telescope).
It is only recently possible to correct atmospheric distortion by having a computer project a laser through the atmosphere and measure the change in realtime and adapt for it (adaptive optics).
http://en.wikipedia.org/wiki/File:Laser_Towards_Milky_Ways_C...
Also, the increase in CCD densities have become enormous in the past few years. So it might be possible to make a matrix that could resolve the flag in the near future.
The stereo telescope method they mention at the end has also been improved recently if I remember reading correctly and they have robotic telescopes that can pull this off.
ps. the James Webb Telescope that's going up in 2014 will have 6 times the collection area of the Hubble, so maybe that will be able to do it ! It looks like it's right out of Star Trek: