not too sure about 737 avionics as I've never worked on one - apart from to install floor strip lighting once.
The flag circuits on most a/c I've worked on are parallelled off, so maybe you have an instrument problem. Do you have any spares or a handy a/c to borrow parts from? If you have an ADI or HSI, it might be worth slaving them into each of the four positions in turn to see if the snag clears. I did the same with a 146 a whils ago for a similar defect and it was the ADI keeping the flags in view, while the deviation pointers were still working away merrily behind the flags. Just a thought.
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NO FAULT FOUND