It's faster to give the monarchs false plans and Loren than to go over all the trouble to finish both dull quests. That doesn't affect the game in any way, at least I haven't experienced anything odd.I've always thought that the type of banner you get in your castle is determined by the fact who you decide to give the Gryphonheart Trumpet to. I'm not sure, though. I've experienced bugs similar to yours with the flags of Bracada and Deyja, so it might be true that the flag generator is not functioning quite right.
