This is (EDIT:) NOT a crime IF it actually happened, (EDIT:) BUT IT IS A VIOLATION OF THE FLAG CODE OF ETIQUETTE:
TITLE 4 > CHAPTER 1 > § 8
§ 8. Respect for flag
(g) The flag should never have placed upon it, nor on any part of it, nor attached to it any mark, insignia, letter, word, figure, design, picture, or drawing of any nature.
TITLE 4 > CHAPTER 1 > § 3
§ 3. Use of flag for advertising purposes; mutilation of flag
Release date: 2006-03-20
Any person who, within the District of Columbia, in any manner, for exhibition or display, shall place or cause to be placed any word, figure, mark, picture, design, drawing, or any advertisement of any nature upon any flag, standard, colors, or ensign of the United States of America; or shall expose or cause to be exposed to public view any such flag, standard, colors, or ensign upon which shall have been printed, painted, or otherwise placed, or to which shall be attached, appended, affixed, or annexed any word, figure, mark, picture, design, or drawing, or any advertisement of any nature; or who, within the District of Columbia, shall manufacture, sell, expose for sale, or to public view, or give away or have in possession for sale, or to be given away or for use for any purpose, any article or substance being an article of merchandise, or a receptacle for merchandise or article or thing for carrying or transporting merchandise, upon which shall have been printed, painted, attached, or otherwise placed a representation of any such flag, standard, colors, or ensign, to advertise, call attention to, decorate, mark, or distinguish the article or substance on which so placed shall be deemed guilty of a misdemeanor and shall be punished by a fine not exceeding $100 or by imprisonment for not more than thirty days, or both, in the discretion of the court. The words "flag, standard, colors, or ensign", as used herein, shall include any flag, standard, colors, ensign, or any picture or representation of either, or of any part or parts of either, made of any substance or represented on any substance, of any size evidently purporting to be either of said flag, standard, colors, or ensign of the United States of America or a picture or a representation of either, upon which shall be shown the colors, the stars and the stripes, in any number of either thereof, or of any part or parts of either, by which the average person seeing the same without deliberation may believe the same to represent the flag, colors, standard, or ensign of the United States of America.
I do not know when this photo was taken but someone who has been following the media could probably match her outfit to a dated picture in some media story. It was attached the story Andrew Sullivan wrote as an example of how ludicrous she looks as a national candidate, and I do not think anyone has caught what she was actually doing at the time. He did not mention it in the story itself, but I am not certain about anyone else.
Please let me know if you have any hints or tips on this one, but it looks very bad in my eyes.