I can't speak on behalf of the other moderators, but I have declined several flags for this reason. One point that is quite important is that current moderators are not elected, but have been designated. In other words, we do not represent the community, but we are just here to speed up the process when the community would take too long to do so (at least, that's my own vision).
An interesting aspect of Stack Exchange is that reputation/voting mechanism, with the idea that the community should take care as much as possible of the site, and the reputation defines your involvement in the community. It's of course far from perfect, but the concept is nice.
In other words, I personally welcome flags related to bad/obsolete comments, to offensive/spam content that needs to be removed right away, or to old content that might not visible enough by the community. If I believe that some content should be taken care of by the community itself, then I might decline the flag.
As for the question you mention, there has been a moment of indecision, where it was not clear whether is was a serious question or not, which probably explains why your flag was declined and then the post deleted.
EDIT: After reading the post about moderator election on SO, I read some elements that I believe to be quite inline with my previous comments:
Moderators are human exception handlers, there to deal with those (hopefully rare) exceptional conditions that should not normally happen, but when they do, they can bring your entire community to a screaming halt — if you don’t have human exception handling in place.
[...] a lot of flags aren’t identifying things that are particularly exceptional: in particular, posts that need to be closed (duplicates, off-topic questions, etc) or are of extremely poor quality aren’t all that uncommon on a site that gets over 7000 new questions and 11K answers each day. While moderators are well-equipped to handle these quickly, they don’t actually require moderators when a sufficient number of experienced users are willing and able to help.
Of course, Ac.SE is far from reaching SO stats, but I think the notion of "quickly" is worth emphasising: if it needs to be treated urgently, by all means, flag it. There was a recent offensive answer to a question, and flags are completely justified. However, I also believe we start to have a community that can take care of the site, and I believe leaving the community taking responsibilities is a good way to make it grow, instead of waiting for mod intervention. But that's just my two cents.