Why precisely is this Hacker News material?
I'm not sure this is a good question. If significantly more people vote it up than flag it, and PG doesn't specifically ban it, it's Hacker News material. Personally, I thought it was an astonishing article that I was happy to read, but flagged it for fear that HN is starting to lose focus. I think the right question is how votes and flags should be weighed.
I think you're absolutely correct. What does a vote mean? What does a flag mean? Do they differ at an article or comment level? (Other than the obvious flag:downvote difference)
I do prefer upvotes to "+1" or "me too" responses, but downvotes can either be indicators of "I disagree with you," or "this is inappropriate for this forum/discussion/etc." It's unfortunate that there is little way to disambiguate them except in certain obvious cases.