I'm only aware of three sites -- one in West Maui, and two in South Maui where people have gotten grief over dive flags.
One of these sites (Mala) happens to also be a spot that the DLNR would patrol for other reasons -- i.e. appropriate permits (valid and/or commercial) on trailers/boats being launched, so they can also watch for other illegal activities (e.g. swimming in a marked navigation channel, diving without a flag, etc.). Incidentally, they're not as fascist as some of the stories make it seem -- according to the employer of an individual arrested for the swimming-in-boat-channel issue, that individual had been warned several times before the DLNR had him arrested.
Another of these sites (Ahihi), is being watched heavily for other reasons -- it just works out that they can hassle divers as well, since they're there.
The only other site I've heard of enforcement issues from is Makena Landing -- incidentally, I've heard of *several* flags having been stolen from in the water in that area, during the 45-60 minute span of when the instructor has parked it, and when they return to pick it up.
As for legal/safety issues -- I totally understand that side. If you're intentionally surfacing apart from a flag, you're a bloody idiot. Also, the idea that swimming across a marked navigation channel (i.e. approach to a somewhat busy boat ramp) being safe and prudent is, well, misguided.
However, there is a major thing lacking in this deal -- enforcement & education of the boating side. Boaters (including kayakers, canoeists, jetski operators, etc.) should be cited for violation of the 100' rule, especially if they're going faster than "slow-no-wake".
While on Oahu to observe / handle logistics for an IE last December, I watched (and took photos of) two
DLNR enforcement RIBs basically do high-speed donuts around the several dive flags in the water -- slowing down only to question the freedivers in the area of the items in their catch bag... while this is technically legal (for them), it still isn't safe, nor is it setting a good example.
Finally, I think the primary reason they're looking at size is that Walmart is selling some dive floats (which are handy and good for various purposes, but not as a legal dive flag) that include a dive flag that is ~5"x4" -- about 1/4 the size of a legal-size flag.
Overall, I haven't heard of any enforcement that goes beyond what I'd hope to see -- I just hope that they get around to enforcing the rest of the statute... the part that actually makes the safety aspect sensible.