Ponyville is technically where San Francisco is supposed to be. San Discordo is what replaces San Diego. Simply because discord is awesome.
Why would there be a city named after Discord though? Maybe sometime in the future, once he actually does something useful for Equestria, but as it is he is a former tyrant and backstabber whose only beneficent act at all was to help clean up the mess he was responsible for in the first place.
Don't get me wrong, I absolutely love him as a character and he was my favorite villain until Rainow Rocks came along and blew him out of the water with the Dazzlings and more depth for Sunset Shimmer, but if we are talking in universe it'll be a long time until someone names a city after him. (Cue the first episode of Season 5 proving me wrong)
Now that I think about it, maybe it could work if Discord was the leader, but which civics would unlock him I have no idea. Maybe he should show up when Equestria has completely incompatible civics like Capitalism, Central Planning, Theocracy and Secularism running concurrently? Before that I would like to see Luna included first though, maybe Cadence and Twilight as well.
There a couple of reasons for the flag change. It's more simple, and RFC always seems to find a way to unnecessarily change a nation's flag/color from vanilla. I was trying to keep with that tradition

It also does appear somewhere:
I know, it showed up in Twilight's flashback in Cutie Mark Chronicles when she went to see her first Summer Sun Celebration. I think it's Celestia's personal coat of arms though, but at this point in time she was the only ruler so it made sense to also let it stand for Equestria as whole. Now that the number of princesses has quadrupled I'm not sure it would be fair to the others, especially Luna who is supposed to be her sister's equal.
Here is an idea: Every other turn the leader changes between Luna and Celestia and the flag to their respective emblems (though we'd have to make one up for Luna, but it shouldn't be too difficult as we'd just have to copy and paste her cutie mark to fit with the current flag) to properly represent their shared rule.
Using coats of arms over flags is the standard in RFC/DoC anyway.
Yeah but human civilizations for the most part don't have a single immortal leader singlehandedly running the show for millennia as is the case for Equestria.
...
Wait a minute... Woah. How didn't I notice that earlier?
Anyway it stands to reason that even if that was the official coat of arms of the entire nation rather than just that of its autocratic ruler, it probably was changed after Luna's return. The whole reason she was banished to the moon for a thousand years in the first place was because she rose up against her sister in jealousy over their subjects preferring the day over the night, so I'm pretty sure Celestia would now take steps to truly make them (appear) equal wherever possible to prevent that from happening again.