Yes, I'm the first to admit that the issue of the flags of the Confederacy is complicated to say the least. One question on the Shenandoah though, how could Capt Waddell know the decision of March,1865? He wasn't spoken to by any friendly vessels nor did he have access to cable either to the 'Kirby Kingdom' or, most crucially, to Richmond, to receive such information.
D'OH
I believe you may be correct on that. I was looking at an 1890's era print of the shenandoah ATM, and it apparently took some creative license as far as the flags go. When I went out to the book shelves and got my book on the Shenandoah, the photos in their did indeed show the Stainless Banner as that being flown. My bad.
Although, IIRC, isn't that one of the reasons they added the red bar to the fly, is because of CSN complaints that the Stainless, when flown at sea, looked like a plain white flag which the CS officers equated to a sign of surrender? (Just going off memory here...)