Why anyone would pick the Guard over the Reserves is known only to themselves or those with whom they choose to share information. I know of one soldier who made the shortest drive to an armory his main consideration.
My son enlisted in the Iowa Army Guard before 9/11/01, and he volunteered for duty in Iraq in 2003 (actually changing units to do so)- on enlisting, he was already aware that the Guard had been "federalized" decades ago, and that active duty would put him under federal auspices ("Uncle Sam totally owns my ass").
The national flag has been good enough for the veterans in this family since 1776. If another family wished to drape a casket with their state flag, I would consider it inappropriate, but I would not quibble about it unless the act was obviously meant to be a blatant political statement to undermine the mission... if an officer simply took it upon himself to use the state flag for whatever reason, then I would consider his "balls" (your words) subject to removal.
And I don't say that lightly.
The two-star generals who command the state National Guards report to the governors, not the Defense Department. The Adjutants General are not required to meet any military service or education requirements of active duty military personnel.
In other words, nobody in the U.S. Department of Defense has the authority to "remove" any of these men.