Being able to see what guild/clan/faction opposing players belong to would be a detriment and seems like it would promote a great deal of cowardly behavior. Say for instance you're scouting about and you see a group of players moving toward an objective, and you instantly know who they are, where they come from, and how powerful they are. Instead of observing their numbers, location, and direction, you're just going to rely on what you already know from the client about their faction to determine how your faction reacts to their movements, what your strategy toward them should be, etc. This would negate a great deal of tactical maneuvering, would limit the effectiveness of surprise attacks, and so on. I think these types of decisions should be made according to what you can see, not according to what your UI tells you about the power level of your enemy.
The alternative is much more interesting in my mind. Say you've scouted an enemy army moving through a valley toward your faction's mine, and you need to report it. It would be far more suspenseful and would force many more tactical and strategic decisions if it was not immediately apparent who this group of attackers are, how powerful they are, and so on. All you could report to your friends would be numbers and movement information. Do you call in more troops and prepare to defend your mine? Do you retreat and allow them to have your mine? Do you split your forces and attack them when they least expect it? The only information you have comes from your observations. This creates a situation where making the correct decision could determine a positive outcome, and making a wrong decision could mean utter defeat and the loss of your mine.
If people have the choice of whether to fly their colors or not, the army attacking the mine could purposely fly their banners, broadcasting to everyone who sees them who they are. If they're a powerful faction, their well-known might could deter would be attackers and allow them greater tactical license on the battlefield.
This could also create situations where it is possible to create distractions and diversions, allowing smaller but more cunning forces to confuse the enemy into defending one point that you're not especially interested in, while neglegting the defense of your true objective.
I hope you can see where I'm going with this. Too much information about your enemy is just going to make this a game of who is the most powerful, and would limit the usefulness of cunning and tactical prowess.