Leaving aside whether the flag worship is right or wrong, it certainly is perplexing to outsiders. I don't think there are too many other countries which treat their flag like Americans do (maybe France?). It's hard to express just how strange or alien it is to see an American's passion for their flag. There's probably a mixture of cultural misunderstanding and Stockholm Syndrome at play. On the one hand, if Americans are bombarded by the flag so much and from such a young age, the symbolism of it really will be more powerful. On the other hand, it's just a flag. I suppose if someone were to immigrate to the US having not been brought up with that same attitude towards the flag, they might be a bit confronted by its pervasiveness. If the aim is to be culturally sensitive, do you force your understanding of the flag upon them, or try toning it down a little?
I recently went to the National Museum of American History in DC, where they have an exhibit about the flag, featuring the original flag. The atmosphere was a little bizarre - comparable to something like Lenin's Mausoleum, where people seemed not to be there for historical curiosity's sake, but because it's a shrine of sorts. I would definitely describe the attitude towards the flag as religious - the flag is sacred, and negative treatment of it isn't merely wrong, but blasphemous.