but it seems like even if you felt that way, it would be fine to wave your flag in a friendly competition among nationally-representative groups/people where all the others were waving THEIR flags.

And this is where you are wrong. It would seem that way to a normal person. And many Germans also do see it that way.
But a certain loud group of people doesn't see it like that. It's the same for big sports events (read: Euro or world cup in football). People have flags at their windows & cars. And a certain group complains about those flags.
You probably heard about the glorious actions of our team in the last WC - many people hated them and were mocking the team.

Actions like this are just disrespectful to our country. But what do you expect from such degenerates.