Thanks for the response. An ex-Navy person that I was talking to about the flag suggested this to me and it does make sense.
Not only is the flag rather large for a unit flag, it is in wonderful shape. The "Navy guy" said that boats, then and now, carry a complement of flags and that this would explain its excellant condition, in that it may not have flown all the time. I'm out of my element here, so please forgive my lack of correct terminology and such.
Another thing, in my mind, that puts it on a blockade runner is that Fraser Trenholm & Company that owned and ran alot of blockade runners was a SC firm. The company's representative in Liverpool had a Palmetto Tree and Crescent painted in his house! It would therefore make sense that they would fly a Palmetto on some of their boats.
All this is just conjecture, of course.
If you come up with anything or can think of anyone I should contact or anywhere to look, please let me know. I would like to see the flag identified.