The Flag is Harassment
"HARVARD College seeks to maintain an instructional and work environment free from racial harassment. The College defines racial harassment as any action on the part of an individual or group that causes another individual or group to feel demeaned or abused because of racial or ethnic background. Such actions may include, but are not restricted to, using racial epithets, making racially derogatory remarks and using racial stereotypes. --Handbook for students
The hanging of a Confederate flag in the Leverett Towers does not constitute a legitimate exercise of free speech. The flag is a form of harassment of the members of the Black community at Harvard. The College has an obligation to demand the removal of the flag in accordance with its position as a guarantor of an environment free from harassment.
The confederate flag symbolizes a racist sentiment in the same way that a Nazi swastika does. As such, it constitutes a form of hate speech which must not be tolerated by the College any more than shouted epithets or racially derogatory remarks would be tolerated.
Furthermore, the displayer's insistence that he does not intend to offend anyone cannot be taken seriously. If he sincerely did not want to offend, he would discreetly hang the flag on his wall instead of in full public view.
Neither the Constitution nor the College makes any absolute guarantee of free speech. Like the Supreme Court, the College strives to balance conflicting individual rights. In the case of the Stars and Bars, the obligation of the College to forbid the harassment of some of its members overrides any absolute interpretation of the First Amendment.
If the College takes no action, it will be moving away from its stated positions and away from its painstaking efforts to foster a tolerant environment. The College should demand the removal of the flag from the window.