I think if you read what you quoted again you will see that DB did not say a dive buoy is against the law. What he did say about interfering with navigation sounds about right to me.
Actually, ALL buoys can be said to interfere with the navigation of a vessel -- in a way ;-)
I think it has to be read in context, bearing in mind that it is not specific to dive buoys -- it applies to all private buoys regardless of type. The specific clause is:
"No person shall place or cause to be placed in any water a private buoy that interferes with or is likely to interfere with the navigation of any vessel, or misleads or is likely to mislead the operator."
Placing a hazard buoy or navigational buoys is not deemed to be "interfering" where there are actual hazards. Neither is placing a dive buoy where there are actual divers.
FWIW: Two years ago (after the original post) I became responsible for the placement of private buoys on behalf of our lake association and have spent WAYYY too much time working with DFO and Coast Guard officials to correctly mark the hazards. I'm not trying to nitpick or critique the original post, just clear up any misconceptions that might be out there. Specifically:
1. the regulations apply to all of Canada, not just Ontario.
2. there is no choice of flag to fly. The boat flies "A", the buoy flies the red/white flag.
3. the buoy must be moored, not held by the diver.
4. most -- if not all-- of the floats sold at local dive shops do not meet the required standards.
BTW: in a related note, the latest (2009) copy of the Safe Boating Guide issued by Transport Canada merely recommends operators keep clear 100m (328') from either flag. There's still no actual requirement for other vessels to stay away. My country can be so dang stupid sometimes.