How to hide the Flagged folder in Mail.app (Mountain Lion)?
Drove me crazy too, so I made a mailbundle to right this wrong ;-)  Download it here:
http://eelco.lempsink.nl/NoFlaggedMailbox.zip

Note: I’ll update the plugin every time when Mail.app breaks it for ‘compatibility’ reasons.  Just download it again and run the INSTALL script again to update.  (Might take me a couple of days though.)