1. Ecuador: Update small flag, see http://cdn.boardhost.com/flags/ec.png.
2. French Guiana: Doesn't have to be fixed, but currently both using France flag. As some other French countries (like Saint Barthelemy, Reunion, etc) are using unofficial flags, this may also be reviewed. See http://en.wikipedia.org/wiki/Flag_of_French_Guiana.
3. Iraq: Update small flag, see http://cdn.boardhost.com/flags/iq.png.
4. Lybia: Redesign large flag, see http://en.wikipedia.org/wiki/Flag_of_Libya. Update small flag, see http://cdn.boardhost.com/flags/ly.png.
5. Malawi: Update small flag, see http://cdn.boardhost.com/flags/mw.png (requires trimming, and take note of the almost-indistinguishable different-colored border).
6. New Caledonia: Redesign large flag, see http://en.wikipedia.org/wiki/Flag_of_New_Caledonia. Update small flag, see http://cdn.boardhost.com/flags/nc.png.
7. Reunion: Redesign small flag, see http://en.wikipedia.org/wiki/Flag_of_R%C3%A9union.
8. Saint Barthelemy: Either redesign small flag (currently using https://s.ppy.sh/images/flags/bl.gif) or use France flag for large one, see http://en.wikipedia.org/wiki/Flag_and_coat_of_arms_of_Saint_Barth%C3%A9lemy.
9. Saint Martin: Doesn't have to be fixed, but currently both using France flag. As some other French countries (like Saint Barthelemy, Reunion, etc) are using unofficial flags, this may also be reviewed. See http://en.wikipedia.org/wiki/Flag_of_the_Collectivity_of_Saint_Martin.
10. Tuvalu: Update small flag, see http://cdn.boardhost.com/flags/tv.png.
11. Wallis and Futuna: Redesign large flag, see http://en.wikipedia.org/wiki/Flag_of_Wallis_and_Futuna

1. Caribbean Netherlands (BQ): Previously was part of Netherlands Antilles, but now becomes "literally" an independent country. Still part of Netherlands though.
2. Curacao (CW): Previously was part of Netherlands Antilles, but now becomes "literally" an independent country. Still part of Netherlands though.
3. Kosovo (XK): Used a temporary user-assigned country code. Supposedly going to be assigned with CV, but not yet for now.
4. Sint Maarten (SX): Previously was part of Netherlands Antilles, but now becomes "literally" an independent country. Still part of Netherlands though. This is the southern part of a divided island(s), the Northern part is called Saint Martin which is part of France.
5. South Sudan (SS): Independent country, see http://en.wikipedia.org/wiki/South_Sudan.

Decided to bump this thread.

I found out that peppy simply dump in the flag given from Natteke's link, as I downloaded the flag from the link as well. Inside the folder, the files have variety of filenames format, which is quite cluttered. Additionally, some country names may need to be renamed as peppy simply placed some sort of script to automate the image hotlinking.

The list below mentions only 128×128 images, while peppy actually dumped every images inside the folder including 16×16, 32×32, 48×48, 64×64, and 256×256. I also pointed out some problems regarding small images as well, comparing to the Flag Counter website (this is also where I got the country codes from).

So these are what I found (I may sound like Mr. Obvious, but oh well... ):

Below are list of countries which have missing large flags due to wrong filename

1. Aland Islands: Rename Aland-Islands-128.png into Aland-Islands-Flag-128.png.
2. Antigua and Barbuda: Rename Antigua-and-Barbuda-128.png into Antigua-and-Barbuda-Flag-128.png.
3. Aruba: Rename Aruba-128.png into Aruba-Flag-128.png.
4. Bermuda: Rename Bermuda-128.png into Bermuda-Flag-128.png.
5. Bosnia and Herzegovina: Rename Bosnian-Flag-128.png into Bosnia-and-Herzegovina-Flag-128.png.
6. Cayman Islands: Rename Cayman-Islands-128.png into Cayman-Islands-Flag-128.png.
7. Croatia: Rename Croatian-Flag-128.png into Croatia-Flag-128.png. Fixed!
8. Denmark: Rename Denmark128.png into Denmark-Flag-128.png.
9. Dominica: Rename Dominicana-128.png into Dominica-Flag-128.png.
10. Estonia: Rename Estonia-128.png into Estonia-Flag-128.png.
11. Faroe Islands: Rename Faroe-Islands-128.png into Faroe-Islands-Flag-128.png.
12. French Polynesia: Rename French-Polynesia-128.png into French-Polynesia-Flag-128.png.
13. Grenada: Rename Grenada128.png into Grenada-Flag-128.png.
14. Malaysia: Rename Malaysia128.png into Malaysia-Flag-128.png. Fixed!
15. Martinique: Rename Martinique-128.png into Martinique-Flag-128.png.
16. Montenegro: Rename Montenegro128.png into Montenegro-Flag-128.png.
17. Netherlands Antilles: Rename Netherlands-Antilles-128.png into Netherlands-Antilles-Flag-128.png.
18. New Zealand: Rename New-Zealand128.png into New-Zealand-Flag-128.png.
19. Northern Mariana Islands: Rename Northern-Mariana-Islands128.png into Northern-Mariana-Islands-Flag-128.png.
20. Saint Kitts and Nevis: Rename Saint-Kitts-and-Nevis-128.png into Saint-Kitts-and-Nevis-Flag-128.png.
21. Saint Pierre and Miquelon: Rename either Saint Pierre and Miquelon128.png or SPM-128.png (both are slightly different), into Saint-Pierre-and-Miquelon-Flag-128.png. Delete other flag file if necessary.
22. Saint Vincent and the Grenadines: Rename either Saint Vincent and the Grenadines128.png or SVG-128.png (both are slightly different), into Saint-Vincent-and-the-Grenadines-Flag-128.png. Delete other flag file if necessary.
23. Trinidad and Tobago: Rename Trinidad-and-Tobago-128.png into Trinidad-and-Tobago-Flag-128.png.
24. United Arab Emirates: Rename United-Arab-Emirates-128.png into United-Arab-Emirates-Flag-128.png.

Below are list of countries which have missing large flags due to different country name

1. Cote D'Ivoire: Rename country name into Ivory Coast.
2. Iran, Islamic Republic of: Rename country name into Iran.
3. Lao People's Democratic Republic: Rename country name into Laos.
4. Macedonia, the Former Yugoslav Republic of: Rename country name into Macedonia.
5. Syrian Arab Republic: Rename country name into Syria.
6. Tanzania, United Republic of: Rename country name into Tanzania.

Below are list of countries which needs to be reviewed

1. Congo, The Democratic Republic of the: Rename country name into Congo-Kinshasa. Rename Congo-Kinshasa-128.png into Congo-Kinshasa-Flag-128.png. (Not to be confused with its neighboring "Congo")
2. French Guiana: Flag doesn't exist from Natteke's link provided. Different flag style exists, while the current small flag style is using similar to France one.
3. Guadeloupe: Rename Guadeloupe-128.png into Guadeloupe-Flag-128.png. Update its small flag, here's the flag as taken from Flag Counter website (changed into new "unofficial" flag).
4. Guernsey: Rename Guernsey-128.png into Guernsey-Flag-128.png. Add its small flag image as it doesn't have one, and here's the flag as taken from Flag Counter website.
5. Holy See (Vatican City State): Rename country name into either Holy See, Vatican City State, or Vatican City. There are 2 flag files, both are slightly different: Holy-see-Flag-128.png and Vatican-City-128.png.
6. Isle of Man: Update its small flag, and here's the flag as taken from Flag Counter website (has darker red color, and distinguishes the difference with Morocco flag).
7. Jersey: Update its small flag, and here's the flag as taken from Flag Counter website (which looks better than having flags with border lines anyway).
8. Libyan Arab Jamahiriya: Rename country name into Libya. While file renaming isn't necessary, the flag design may need to be updated to reflect the current flag style.
9. Myanmar: This is also known as Burma, so this is either keeping the name as is or rename it. If "Myanmar" is used, rename Burma-Flag-128.png into Myanmar-Flag-128.png; else if "Burma" is used, no file rename necessary. Another problem is that the flag is using old flag style (which is hard to distinguish with Taiwan flag), while the new one is already changed. Flag Counter website apparently has the new small flag style as well.
10. Nepal: Modify its small flag so that it doesn't appear stretched.
11. New Caledonia: I'm not sure about its large flag since it has France flag. While it does related to France, New Caledonia does has its own flag (and it appears that the small flag itself is of the New Caledonia flag).
12. Palestinian Territory Occupied: Rename country name into Palestinian Territory, and rename file Palestinian-Territory128.png into Palestinian-Territory-Flag-128.png
13. Reunion: Rename Reunion-128.png into Reunion-Flag-128.png. While it does related to France, Reunion does has its own flag (and it appears that the large flag itself is of the Reunion flag).
14. Switzerland: Modify its small flag so that it doesn't appear stretched.
15. Timor-Leste: Also known as East Timor. 2 different flag files of same countries exists: East-Timor128.png (may need to be renamed into East-Timor-Flag-128.png if country name changes) and Timor-Leste-Flag-128.png. You can remove either one of the files.
16. Virgin Islands, British: Either rename it to British Virgin Islands or staying as it is. Rename flag filename from British-Virgin-Islands-128.png into either British-Virgin-Islands-Flag-128.png or Virgin-Islands,-British-Flag-128.png accordingly.
17. Virgin Islands, U.S.: Either rename it to Virgin Islands (doesn't require renaming flag filename, staying as Virgin-Islands-Flag-128.png), U.S. Virgin Islands (requires renaming flag filename into U.S.-Virgin-Islands-Flag-128.png), or stay as it is (requires renaming flag filename into Virgin-Islands,-U.S.-Flag-128.png).

Below are list of countries that are not supposed to be a... "country", perhaps (with extra notes)

1. Annonymous Proxy: Flag doesn't even exist.
2. Antartica: Rename Antarctica-128.png into Antartica-Flag-128.png. Update small flag with this one. (well, I dunno what to say about this. Oh well... )
3. Asia/Pacific Region: Flag doesn't even exist.
4. Europe: Rename European-Union-Flag-128.png into Europe-Flag-128.png (funny that this "country" region does have it's flag... ).
5. Satellite Provider: Flag doesn't even exist.

Extra: Countries that has players but isn't listed on Countries list (because of no ranked scores on osu!Standard, though players can be spotted on different modes)

1. Anguila: No changes necessary.
2. Cape Verde: No changes necessary.
3. Chad: No changes necessary.
4. Greenland: No changes necessary.
5. Mauritania: No changes necessary.
6. Monaco: No changes necessary.
7. Mozambique: No changes necessary.
8. Rwanda: No changes necessary.
9. Saint Martin: 2 large flag files exists: Saint-Martin-Flag-128.png (official) and Saint-Martin-128.png (unofficial). Missing small flag, but can be taken from France flag.
10. Samoa: No changes necessary.
11. Zimbabwe: No changes necessary.

Extra: "Ghost" countries (countries without players). Pretty much unnecessary to change other than for references.

1. American Samoa: Rename American-Samoa-128.png into American-Samoa-Flag-128.png.
2. Bouvet Island: Rename Bouvet-Island-128.png into Bouvet-Island-Flag-128.png.
3. British Indian Ocean Territory: Rename BIOT-128.png into British-Indian-Ocean-Territory-Flag-128.png.
4. Burkina Faso: No changes necessary.
5. Central African Republic: Rename CentralAfricanRepublic128.png into Central-African-Republic-Flag-128.png.
6. Christmas Island: Rename Christmas-Island128.png into Christmas-Island-Flag-128.png
7. Cocos (Keeling) Islands: Rename Cocos-Islands-128.png into Cocos-(Keeling)-Islands-Flag-128.png.
8. Comoros: No changes necessary.
9. Congo: No changes necessary. (Not to be confused with its neighboring "Congo, The Democratic Republic of the" or known as "Congo-Kinshasa")
10. Cook Islands: Rename Cook-Islands-128.png into Cook-Islands-Flag-128.png.
11. Eritrea: No changes necessary.
12. Falkland Islands (Malvinas): Rename country name into Falkland Islands. Rename Falkland-Islands-128.png into Falkland-Islands-Flag-128.png.
13. French Southern Territories: Rename French-Southern-Territories128.png into French-Southern-Territories-Flag-128.png. Also known as French Southern and Antarctic Lands.
14. Gambia: No changes necessary.
15. Guinea: No changes necessary.
16. Guinea-Bissau: No changes necessary.
17. Haiti: No changes necessary.
18. Heard Island and McDonald Islands: Either leave this as it is or make a duplicate copy of Australia flag, as this is basically part of Antarctica without even a single person living there, though it's related to Australia as it has Australia flag.
19. Kiribati: Rename Kiribati-128.png into Kiribati-Flag-128.png.
20. Korea, Democratic People's Republic of: Rename country name into North Korea. (Not to be confused with Korea, which is actually "South Korea". Someone did requested to change his/her flag into this country )
21. Lesotho: Update small flag with this one.
22. Liberia: No changes necessary.
23. Malawi: No changes necessary.
24. Mali: No changes necessary.
25. Marshall Islands: No changes necessary.
26. Mayotte: No changes necessary.
27. Micronesia, Federated States of: Rename country name into Micronesia.
28. Montserrat: No changes necessary.
29. Nauru: No changes necessary.
30. Niue: No changes necessary.
31. Norfolk Island: Rename Norfolk-Island-128.png into Norfolk-Island-Flag-128.png.
32. Palau: No changes necessary.
33. Papua New Guinea: No changes necessary.
34. Pitcairn: Rename Pitcairn-128.png into Pitcairn-Flag-128.png. Also known as Pitcairn Islands.
35. Saint Barthelemy: Either use the current Saint-Barthelemy-Flag-128.png or use the Saint-Barthelemy-128.png.Small flag not found, and the image found on Flag counter website is the same as France.
36. Saint Helena: No changes necessary.
37. Sao Tome and Principe: Rename Sao-Tome-and-Principe128.png into Sao-Tome-and-Principe-Flag-128.png.
38. Seychelles: No changes necessary.
39. Sierra Leone: No changes necessary.
40. Solomon Islands: No changes necessary.
41. Somalia: No changes necessary.
42. South Georgia and the South Sandwich Islands: Rename South-Georgia-Flag-128.png into South-Georgia-and-the-South-Sandwich-Islands-Flag-128.png. Alternatively, rename Country name into South Georgia without renaming the flag filename.
43. Svalbard and Jan Mayen: Either rename country name into Svalbard or rename flag filename from Svalbard-Flag-128.png into Svalbard-and-Jan-Mayen-Flag-128.png. Remove Jan-Mayen-Flag-128.png.
44. Swaziland: No changes necessary.
45. Tokelau: Rename Tokelau128.png into Tokelau-Flag-128.png. Update small flag as shown from Flag Counter website.
46. Tonga: No changes necessary.
47. Turks and Caicos Islands: Rename Turks-and-Caicos-Islands128.png into Turks-and-Caicos-Islands-Flag-128.png.
48. Tuvalu: No changes necessary.
49. Vanuatu: No changes necessary.
50. Uganda: No changes necessary.
51. United States Minor Outlying Islands: Large flag can be taken from United States. Small flag is slightly different (brighter). Actually, rename Jarvis-Island-Flag-128.png.
52. Wallis and Futuna: No changes necessary.
53. Western Sahara: Rename Western-Sahara-128.png into Western-Sahara-Flag-128.png. Update small flag as shown from Flag Counter website.

Unused files (clean them up! )

1. British-Antarctic-Territory-128.png: Flag of British Antarctic Territory, part of Antarctica.
2. England-Flag-128.png: Flag of England, part of United Kingdom.
3. Ex-Yugoslavia-Flag-128.png: Flag of Yugoslavia, before being succeeded by 5 countries.
4. Jarvis-Island-Flag-128.png: (Slightly brighter) Flag of United States for an uninhabited Jarvis Island, part of United States Minor Outlying Islands.
5. Kosovo-128.png: Flag of Kosovo. Temporary country code: XK (no official country code).
6. Northern-Ireland-128.png: Flag of Northern Ireland, part of United Kingdom.
7. Saint-Helena-Dependencies-128.png: Unknown flag, possibly related to Saint Helena.
8. Scotland-128.png: Flag of Scotland, part of United Kingdom.
9. SMOM-128.png: Flag of Sovereign Military Order of Malta. No information regarding Internet connectivity. (Not to be confused with "Malta")
10. Wales-128.png: Flag of Wales, part of United Kingdom.

Regarding the country merge, I can't decide some countries as they either:

1. Have relations to multiple countries. (e.g: Martinique to both France and United States)
2. Have relations to countries located overseas. (e.g: Cayman Islands to United Kingdom, located around United States)
3. Are actually independent countries despite being small. (e.g: Chad)

At the time I wrote this post, there's 184 countries visible on the Country Ranking list.