That would be me you are referencing ;)
I pull the pin before each shot because I don't want it to glance off the pin and ricochet off the green or OB. The game only recognizes the state of the pin at impact ... meaning once you hit the ball it doesn't matter if the pin is in or out, the game only sees it as being pulled. I simply put the pin back in mid-air so I can see the line of the shot.
To your second question, yes you are correct ... sort of. According to rule 17 of the USGA handbook, pulling the flag and then replacing mid-air would result in a penalty IF the ball then hit the flagstick. However, that obviously will not occur in this game because of what I said above regarding the state of the pin at impact.