a) Where should I be identifying which flag is involved?
But there is still a problem: there still doesn't seem to be any way to specify which flag is supposed to trigger the rule.
Yes, currently there is no way to do it... I mean... until a few moments ago, as I have made a patch that adds a "Flag has ID" conditional.
b) I get an error when the rule is enabled...
Clear the cache. If that still doesn't do, make sure you disable the rules that rules_flag pre-installs, as one of them also caused me an "argument #1" error.