I tried to find something to clarify and just about every piece I could find on the internet states that it is an IOC rule that no flags other than the countries participating are allowed. It seems Scotland had a similar problem. The answer in the article is given by the president of the IOC and does not state that it is specific to the Beijing Olympics.
J Swan - do you know where I can find information on the general rules or the specific rules for the 96 games?
http://news.scotsman.com/latestnews/Maxwell-complains-to-Olympic-chiefs.4375492.jp