Arguing symbolism is near impossible cuz it comes down to individual "feelz".
Few Americans, mainly white and somewhat educated, see the historical banner.
Some Americans, mainly white, see it as the flag of the ongoing struggle to supremacy and bringing back "the good 'ol times".
A lot of Americans, mainly black, see it as a symbol of slavery and racism.
What to do? What to do?
The freedom of one person ends where the freedom of another begins." Tear down this flag, Mr. President.
And for clarification: the display of the "Hakenkreuz"-flag is allowed in historical and educational context. Movies with historical context are allowed to show it. You're allowed to own the flag privately (educational). Hell, there is even a market for so called "Militaria" - military antiquities. I made a thread once, showing off that dagger I found and which I sold for quite a lot of money.
It is not allowed by law to use those symbols in the context of racism, anti-semitism, propaganda and/or entertainment. Well, basically out of the boundaries of educational purpose really if you consider historical movies educational to some degree.
As annoying it may be to lack those flags in a Wolfenstein game, I can live with that, no problem. Every German knows the flag, every German knows about its history, some more, some less. But you won't see it misused on the street by racists which is a good thing in my book. You'd still see it in history books...
Overall, sounds like a good compromise to me. Something which can work for the traitor flag in question too.
Don't use it for anything official any more which is silly in the first place. Use it for education. Ban private, public usage. Profit.