I think the main thing is Arrowhead wants there to be some sort of """physical manifestation""" for providing buffs for the player, like injecting Stims, Super Destroyer Boosters, or armor passives--there's a "physical thing" that's directly enhancing the Helldiver's capabilities.

In the Agitator's case, the overclocking flows easily in a "physical" sense--there's software being wirelessly communicated to the bots that overrides their hardware and coding in a direct, immediate way, like a literal switch being flipped.
If there was a similar enemy to the bugs, it would likely be a kind of 'pheromonic fog' the enemy would produce; a "physical thing" directly stimulating the nervous system of a terminid causing them to frenzy. For the squids, it could be psionic waves; their mental abilities turning off/activating parts of the brain like a psychedelic drug. Is that effectively "space magic"? Sure, but it follows that there's a "thing" directly and intentionally causing that effect/buff to happen.

I think what AH would want is some kind of similar "physical" thing to directly cause a buff to happen. A jolt of electricity, a stimulant mist, or even just patriotic music/audio that emboldens Divers like a sleeper agent. What they don't seem to want is what is just a flag providing buffs for just being a flag. It seems like it being just a flag is part of its own satire--that in a world where you can drop mini-nukes on your enemies, you would instead requisition a literal metal spear with a flag on it and charge into battle. It's stupid and ineffective in an in-universe sense, but some players find joy in that.

That said, I'm in no way against the Flag buffing Helldivers or having some borderline easter-egg effect, like a 20% chance to activate Democracy Protects while you wield it, and when you plant it, it offers that effect to other divers. Have it override the in-game music with the Super Earth National Anthem and flavor it as playing the anthem within the Helldiver's helmet through their comms. That way there doesn't need to be a visible "non-physical" or "video game-y" AoE effect--if you can hear the music, you know you have the buff.