Mark Kleiman is right. Federalism is not an answer to a question about official endorsement of the Confederate Flag. "This isn't an issue the federal government has the authority to decide" is part of an answer to the question, but even if this is correct (and my guess is that it is) the second part of the correct answer is, "but it's wrong and states shouldn't do it." Ben Adler's also right that folks contemplating this ought to consider the possibility that Giuliani's indifference to African-American concerns over this issue stems not from political opportunism, but from his longstanding indifference to African-American concerns in general.
There's never been any real evidence that "George Bush doesn't care about black people" as opposed to evidence that Bush is an incredibly bad president on a vast range of subjects. Giuliani's political career, by contrast, has been marked by massive hostility to African-American leaders, and a tendency to actively revel in being disliked by black people. His handpicked successor has, meanwhile, demonstrated that it's perfectly possible to maintain effective law enforcement without acting in the way Giuliani did. He's not, at the end of the day, a very good person and much more so than with your typical politician it seems very plausible to me that he flirts with racist appeals because he's a racist. Maybe not, but as best I can tell it fits the facts better than the alternatives.