Interesting discussion. I also learned about protocols for the flag during my scounting years, and not through any formal education, although we may have touched upon it during a history or civics class in grade school.
As far as the Walking Liberty design, the coin was introduced in 1916, but (according to this web site:
http://www.usflag.org/uscode36.html#USFC ) there were no rules governing display of the US Flag until after 1923. So, technically, Weinman's design violated nothing.
Anybody else remember the 1960's, when various forms of desecration of the flag were popular forms of protest against the Vietnam War? Along with burning, people would actually sew the US flag to the seats of their pants as a form of protest. Unfortunately, the Supreme Court later ruled that these forms of protest are protected under the First Amendment, as the flag is a symbol of the government.
The code states you cannot make clothing out of the flag. It says nothing about replicating or displaying the flag on clothing. How many public service workers display a flag on the uniform? How about Olympic athletes who wrap themselves in a flag after winning? Is this desecration, or patriotism?
9/11 caused a huge wave of patriotism. They couldn't make flags or flag symbols fast enough to meet demand.