This is actually a fairly strong argument and raises the question as to whether states should provide personalized plates at all. I don't know what it takes to get something as a personalized plate, or what the rules are, but I know it's not wide open or we'd see Nike, Pepsi, Apple, and god only knows what other company advertisement plates out there already. (I wonder what the Viagra plate would look like)
My initial thought is that plates are provided by (and maybe stay the property of?) the state government. It'd be like a state putting a Union Jack on a license plate, weird since we aren't part of the British Empire anymore. Our government entities shouldn't be displaying the Union Jack because it implies that entity wants to go back to being under British rule. In the case of the Confederate flag it implies a separatist state, and I don't think anyone actually wants to separate (except maybe Cascadia, that movement is totally real).
But thinking about personalized plates, this might be a seperate issue entirely. As far as I know, there aren't plates available that let people display their religions, or basically any other huge array of interests.
Personally, I completely believe in people's rights to fly whatever flag, hold whatever beliefs, and more or less do whatever they want so long as it doesn't directly/deliberately cause harm (physical or mental) and it doesn't prevent others from the same freedom. But organizations like the government represent many people and as such need to keep a uniform message.