As I understood the directive, dIsplay of the rainbow flag was not forbidden. What they could not do is display it on a par with the US flag. As long as it is not displayed on the same flagpole or beside it at equal height, it was all right.
That’s exactly how I understood the directive. I suspect this is fake news bullsh!t.
I was about to post the exact same thing you did. There was not a rule that embassies could not post that flag.
I think this story is another hit job on Trump (no matter the source)