FYI, Task Task and Task Task HD apps are an improvement to the native Reminders app and show both the tasks and the flagged email items for an Exchange 2007+ server. They are different apps about $5 each for iPhone and iPad respectively. For some goofy reason, Task Task does not work for flagged items on the iPad (but does on the iPhone) so if you are using an iPad be sure to get the HD version. Works for me and I'm on Office 365.
Yes, Task Task shows flagged items regardless of what folder they are in. I keep a fairly clean Inbox and nearly all of my mail items are in folders, flagged or not. By the way, an awesome Outlook program to automatically (and intelligently) keep a clean Inbox is ClearContext. Check it out sometime if you're on a PC platform and running Outlook. Not cheap, but worth every penny.