Blogger have at last come right out and said clearly, though in the context of defending themselves on a different front, that "We consider it a violation of the terms [i.e. Blogger's TOS or terms of service] to modify the Blogger navbar" (the bar you get across the top of each page of blogs hosted on Blogspot.com with the Search this Blog, Next Blog etc buttons).
If you violate their terms of service, the conditions under which they allow you to host your blog for free on Blogspot.com using Blogger, then they have the right to kick you off and delete your blog. So - don't mess with the Blogger navbar if you're on Blogspot.
(If a blog hides the flag or makes parts of the navbar not clickable, the Magical Sheep team have produced a Firefox/Greasemonkey Blogspot Navbar Restorer script for surfers who want to get the navbar features back and flag 'em anyway!)
A pedant might point out they've only referred to modifying the navbar ("modifying" would include at the very least getting rid of the flag button, or plastering a Make Poverty History or other banner over it, I think): they've not actually said you're not allowed to hide or get rid of the navbar altogether. However, that seems a bit nitpicky to me - if their clearly stated policy now is that even changing or tweaking the navbar is a no no, surely concealing it completely through CSS or script trickery would be considered a violation of their TOS too. (The Blogspot Navbar Restorer script also works in most cases to restore the navbar if completely hidden, by the way).
So I'll be changing my previous post about the navbar to add a note about this confirmation.
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