I'm very comfortable with games that display the Nazi flag, why shouldn't the Confederate flag be different?
That reasoning aside, I think that ignoring or changing parts of history that some find uncomfortable, even if they evoke strong emotions, seems like a dangerous game. It seems wiser to draw the line at "all speech ought to be protected from those who have power to control it" and then make thoroughly thought-through exceptions with well-grounded and regularly reevaluated justifications.
edit: markbnj makes a good point, that whatever the justification for Germany's limits on free speech are, they do not apply to a game trying to reenact historical events https://news.ycombinator.com/item?id=9779899