Did anyone ask the restaurant owner to adjust his flags? That didn't seem to be in the news report. Maybe he didn't realize that it would be offensive.
There seems to be a strong emotional reaction where immigrants from Spanish-speaking countries are concerned. Although not that great at gauging human emotion, I don't believe that I've witnessed the same type of feelings concerning people from Europe, Africa or Asia.
I've never heard of any impassioned episodes in Viet nail salons, Chinese restaurants or with Eastern Europeans, even though there's a lot of very poor ones who have terrible or nonexistent English. Not to jump to any conclusions here, but it seems an awful lot like individuals from Mexico and South/Central America are commonly considered the "bad immigrants".
Obviously some areas of the country do have problems with illegal immigrants. However, it's illogical to assume that each immigrant bears the full weight of the transgressions of all others who have come before them. That would be like saying that a random citizen from Kansas is tainted by every bad thing that a US citizen has ever done to a particular nation.