Well, I'm glad to have been proven right in my guess that this was legal when this story first cropped up.
School children don't have absolute free speech, if the school can prove that the shirts are disruptive (say, for inciting ethnic tensions), then they can be told not to wear them. I think it's silly to conflate what are clearly ethnic tensions with patriotism. They didn't wear American flags because they were proud of their country. They wore them to antagonize Mexican-American students who were celebrating something they didn't happen to be a part of. It's a terrible and offensive use of the flag.
I should also note, that it was once considered wildly inappropriate, and gauche to print an American flag decoration on any item of clothing. I still think of it as kind of tacky, it's a gross form of plastic patriotism.
It's also in the Flag Code, which is strictly voluntary, but I wonder if any of these alleged patriots have ever read it.
(d) The flag should never be used as wearing apparel, bedding, or drapery. It should never be festooned, drawn back, nor up, in folds, but always allowed to fall free. Bunting of blue, white, and red, always arranged with the blue above, the white in the middle, and the red below, should be used for covering a speaker's desk, draping the front of the platform, and for decoration in general