Flagging (that is, the hanky code) is alive and well amongst the queers in Melbourne, especially in the Leather scene. I can't comment on the gay Leather scene as I'm not welcome in most gay Leather spaces, being an intersex trans man.
But, even amongst the queer circles that I do move in, flagging is in no danger of dying out. While we may not need to worry about being covert about our desires so much any more, flagging is a uniquely queer way of talking about our sex and our desires. Even when it's not used as a way of cruising, flagging here is a signal of solidarity; a sign that says, "I'm queer and kinky, just like you".
And, yes, it does still work as a cruising device and conversation starter as well - heck, I started talking to Princess when I first noticed her flagging hunter green on her right (looking for daddy).
Now, the problem with flagging is that it's not always obvious whether someone is flagging or whether they're just wearing something they like, fashion wise, so I'm limiting this discussion generally to kink and queer spaces, where flagging generally is flagging. As much as I enjoy having a quiet chuckle when I see alt kids wearing their bandannas and wondering if they know what they're saying about themselves, I'm smart enough not to actually assume they're flagging.
The most common form of flagging I see around me is the leather wrist strap form; simply denoting whether someone is a top or a bottom. Ear piercings are also very common, but are usually a joint flagging-and-fashion sort of decision. Keys on the right or left are common in Leather circles, but not in generic queer circles.
When you get to actual hankies, that's where things get interesting. I've been watching the people around me and looking for their hankies since... well, since I found out about the hanky code when I was about sixteen, really. And I've definitely noticed that some flags are more common than others.
There are three colours that I see at least once a month, flagged on either side:
Black (heavy S&M) is by far the most popular. In Leather circles, usually means "heavy pain". In generic queer circles, usually means "into pain", or as a general kinky signifier.
Red (fisting) is another that I see everywhere, probably more common in generic queer circles than Leather circles though.
And the final one is one I want to talk about a little more in this entry: hunter green, meaning either "daddy" on the left or "looking for daddy" on the right.
I see hunter green everywhere in kink and queer circles. And I have a theory on why it's so popular.
Hunter green (and its lesser known sister, mint green, meaning "mummy/looking for mummy") isn't signifying an act, like most of the hanky code. Hunter green is signifying a desire for a certain type of relationship. Hunter green is signalling a part of your identity, a type of dynamic you enjoy and are seeking.
Hunter green is looking for something more than just kinky sex.
And I think that's why it's so common. It's not just laying some sex act out and saying that you want to do it. "Daddy" and "boy" or "girl" have so many meanings, so many different ways to do it... hunter green is saying "let's talk, let's get to know each other".
While there are other flags looking for types of people (all types of people, everything from bears to sailors to musclemen to drag queens), none of those have the same feel of looking for a certain dynamic. The only thing that could come close would be silver lame, which is about being/wanting to fuck celebrities.
I think it would be excellent if we had flags for other types of dynamics too, and I believe some folk have tried to start them (though I can't think of any examples off the top of my head) but nothing has caught on.
Another interesting thing about flagging is that there are a few differences between Leather culture and queer culture.
I see a lot more (almost all in fact) people flagging as a switch in queer circles, where in Leather people either flag what they're looking for right then, their general orientation, or the role they're playing at the time (that is, a Leather switch might still flag left or right if they're with their top or bottom).
The number of flags is also interesting. In queer circles, the more the merrier. Princess blogs over at flagging opinicus rampant, where their tagline is "there's no such thing as over-flagging", and that's a pretty common idea amongst queers. Flag everything, flag everything you are and everything you desire.
In Leather? God, no. Such a faux pas, you have no idea. Flagging more than two hankies at once is Just Not Done in Leather. You keep it simple, you keep it important.
Personally? I admit to being slightly more towards the Leather attitude in this. I don't mind what others do, but I will never flag more than two, and I do always feel a little bit funny when I see people flagging with more than two. I guess I feel a bit like it's a quality over quantity issue. I may blog more about this in the future sometime.
[Edit] If you like, come join us on twitter to talk about flags & the hanky code. Hashtag, #hankycode.