They may understand it as "mosquito" rather than "little fly" but that is a valid literal translation, just like "gatito" is "kitten" but the literal translation would be diminutive-of-cat -> "little cat".
Outside of your country, mosco is definitely used.
Again, i stated that earlier. They share origin, that doesn't make then mean the same.
I see mosco is definitely used, and rae dictionary has its entrance:
http://lema.rae.es/drae/?val=mosco
Mosco can mean, black horse or mosquito but its NOT the male gender of mosca, that's what i said.
(btw "my" dictionary is the normative spanish by the rae, that also includes south american terms)