Well, I guess that's a very delicate subject to talk about.
In Wolfenstein 3D you can't play a nazzi shooting Americans (for example). You play the good guy shooting the bad guys.
I also don't think the problem is the flag. IMO the real problem is that in most of the games you can play on both sides. Kids can easily start identifying themselves as the side on which they play and forget the important details. Like... history.