I've looked at your files.
Let's start with the xml file.
You have to pay extreme attention to your spelling!!!
The xml can not be opened in MS Explorer.
The first error is at this line....
<<SimObject Name="EDP NASHUA">
The red character is too much!
That's why the xml can't be opened in MS-Explorer.
The correct spelling would be...
<SimObject Name="EDP NASHUA">
The second error is at this line...
<EnvironmentalDataProbe ClientList="KASH_AM_US_FLAG"/>
The red characters are too much!
Only the names from these lines belong here....
<SimObject Name="US_FLAG">
Therefore the line must be as follows...
<EnvironmentalDataProbe ClientList="US_FLAG"/>
The third error is at this line....
<Model SimTitle="US_FLAG_STILL">
But the corresponding entry in sim.cfg looks like this...
title=US_Flag_Still
You use once only uppercase letters and once uppercase and lowercase letters mixed.
This causes the RED X, because the SimObject model is not found.
You have to pay attention to your spelling!
The line must read as follows...
<Model SimTitle="US_Flag_Still">
Moving on to your mdl files.
The animated flag is exactly at the "intersection" of the GMax coordinate system.
In GMax the zero point.
The non-animated flag is not in the "intersection".
Since the flags are placed by SODE at the same coordinates in the simulator with their "intersection point", the consequence is that the flag jumps when the wind changes.