This is exactly how the Steem reward system is meant to work. Rewards are crowdsourced, meaning it's up to the stakeholders to determine what rewards each post should earn. No posts are entitled to any rewards, there's is no objective measure of quality that determines a post's rewards. If you post something unpopular, then the crowd will likely decide that it should not be rewarded.
No one can take away your ability to post it, but the rewards are up to Steem stakeholders to allocate in any way they see fit based on their stake.
From what I understand of it, the current flag system is to remove rewards from things like spam and plagiarized content, not content you find displeasing. For example, say you have someone posting quality right wing political content and they are voted to nothing because people with opposing opinions want to protest it. From my understanding of Steems rules, this isn't how it's supposed to work. Am I wrong or misunderstanding something?
Steem, the blockchain, has no "rules" around when or why to upvote or downvote content. It is very simply a stake-weighted crowdsourcing system for rewarding content.
The reason you and many other people are confused or have misunderstandings about that is likely from the fact that steemit.com uses the term flag instead of downvote and has added their own list of "acceptable" reasons for doing so.
Ah, I see. That would make sense.
Disagreement on rewards is the only thing you could argue in your positions favor. However, I interpret that to mean low-quality/low-effort content with big payouts, not disagreements.