I know some people lost their ability to flag while doing exactly that (the 'flag' link is removed entirely when that happens, the removal of the ability isn't invisible to the user it happens to), but I am unaware of anybody being hellbanned for it.
I can no longer flag because I flagged every inappropriate political post on the front page for a couple days. (It was a pretty bad stretch). I knew it wouldn't help much but it made me feel better. As a result I was flag-banned.
I used to check the New page for spam and content-free posts, and flag obvious stuff. Then one day I lost flagging.
I believe that if you flag an item that then becomes popular it counts against you. If you flag a story that has a strong voter-ring or sock-puppet gang then, guess what: You end up being on the losing end and the sock-puppets win.