I am familiar with McCarthy's claim as I have his book but William Porcher Miles say nothing about the flag being blue at the time and neither does Beauregard. The flag used was designed by Miles and rejected as a CS national flag in February, 1861 as it did not have enough stars at the time to be symmetrical. So when the discussions began in September for creating a "war flag" after the submission from Louisiana by Edward Hancock was rejected (a St. George's cross and with each state's Coat of Arms in the upper left corner) as Miles had already been down that road before with the Jews of Charleston and some fundamentalist Christian sects complaing about flags with St. George's crosses, Miles simply tilted the cross on an angle and created his own design that was not going to bother anybody.

McCarthy's account is post-war and Miles and Beaurgard both wrote about the flag at the time so I tend to go with them.

Greg Biggs