To answer your question:
It is not Illegal to fly a confederate flag in ANY state in this country. Freedom of speech lets you do that all you want, just as it lets you get swasticka tatoos, just as it lets you burn American flags, just as it lets you be a member of the Ku Klux Klan (which, by the way, the Klan's two 'official flags' are the current flag of the United States of America and the christian flag used during the crusdades).
The State legislature of South Carolina passed a resolution not to fly the confederate flag on any public buildings anymore, but it is certainly not illegal to fly one by yourself.
Some private school college campuses - who get to make up their own rules, because they are private and not public schools - have made the flag illegal on their campuses, because of rascist association of the flag.
The NCAA has punished South Carolina for allowing the flag to fly predominantly in their state by not letting them host any "pre-determined site" national championships in any sport.
All this being said, the confederate flag that we know of today, is not actually the original confederate flag and it is not actually the "stars and bars" of the confederacy. The "stars and bars" looks relatively similar to the US flag, except there are only two stripes, one red, one white. There are 7 white stars in the blue circle. The flag we know of today as the confederate flag is a slight variation on the confederate navy's jack flag.
Today: 7 southern state flags have variations of confederate flags still incorporated into their design. Mississippi has the confederate flag we know today in the upper left hand corner of their flag, while AL, AR, FL, TN, GA, and NC all have variations of the original "stars and bars" as their flags.
So either all of the Southern state governments are still racist, or they are commemorating a time when they fought next to eachother for their various reasons - slavery being the most predominant one.
As far as the whole concept of the tournament - I see no problem with it. The Civil War is just about the most fascinating point in US history for a whole slew of reasons. The flag itself is not rascist - but it is often used by rascitst organizations and rascist people. I was a little surprised that the confederate flag was flying alone at the top of this forum - it would make more sense to have a union flag flying next to it - or perhaps, preferrably above it.
All this being said - a team that actively WANTS to be called "slave owners" is probably at LEAST a little rascist when there are plenty of other Southern phrases from the civil war that are less controversial. Certainly owning slaves was a historical fact in this country - but so was lynching people. Normal people don't WANT to be associated with these bad things. Hence the whole "the Civil War was about States' Rights." A true statement, but, really - they just don't want to seem like they were fighting for the state right of SLAVERY - because fighting for slavery sounds bad.
Sorry that was a long rant - but, this is actually a topic I'm quite interested in anyways, so I thought I'd put my two cents in (if its even worth that much). Anyways, my main point is that the whole thing is way more complicated than either of the two camps have made it seem in this forum. There are certainly undertones of rascism whenever you talk about the Civil War - but it doesn't make it any less historical. I mean, certainly the civil war cannot be disallowed as a subject of conversation for the possibility that someone might be offended. That's political correctness gone WAY TO FAR.
As far as I'm concerned, this tournament should go through. They should be allowed to be called "slave owners" - as slave owners were a big part of the civil war ----but, I mean, its ridiculous that they want to be called that. As long as nobody is a horrible person throughout this thing, it seems like it could be fun.
I'm going on vacation for 2 weeks, otherwise, I'd join up immediately. Good luck, guys, and play nice.