It seems like the main issue is that flagging can be used as a tool to harass other bloggers. I have never flagged anyone and I don't think I would.
It would be better perhaps if maybe flags sent a message to someone with higher power like a big fish council where the council of people (maybe voted on like witnesses) could determine if a flag was actually warranted. If so the post could be flagged, but the person passing on the questionable content for review would not have their name attached to that flag so as to keep people from seeking revenge.
I reall don't know what the answer is. Humans will be humans. Otherwise we would not need law, police, and militaries. Sad, but true.