Defacing the Flag
Yes, it IS against the US Flag Code to deface the US Flag. Here is the code citing prepared for members and committees of congress by the Federal Research Service. Page CRS-7 of the “CRS Report for Congress. The United States Flag: Federal Law Relating to Display and Associated Questions.” April 14, 2008.
The Flag Code
Title 4 United States Code:
§ 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.
I believe the flag in this picture is in violation.