Yes, she could and she should be given the benefit of the doubt that she just doesn't know better than to comment on disrespect to the flag while the ceremony is on-going.
I was at a graduation where the audience did not show proper respect to the flag and it got to the point where the rest of us were shaking our heads in dismay.
That said, I don't know why President Obama would seem to be laughing at what she said if she was commenting on some display of disrespect to the flag. He really seems to be going "yeah, can you believe this garbage?," not "oh, you're right, it's really bad people aren't respecting the flag ceremony."
But I HOPE the First Lady and President were not commenting that they thought the flag ceremony was stupid or over-the-top or whatever.
I think this clip is important
not sure who should see it ...Big Gov? Drudge?