Surely this violates the Landmarks Preservation regulations?

As it turns out, it does! I sent this photo immediatelyl to the Landmarks Preservation Commission. Within a week, the following information was sent to me:

The Department of Buildings issued nine violations for the illegal
advertising banner recently placed on the apex of the historic Flatiron
Building at Madison Square today.

The violations were: 

1. Failure to comply with filed plans. Plans called for a 4-foot high
shed and they built it to 8 feet in order to accommodate the Citigroup
ad. 
2. Sign on surface area is too large. 
3. Prohibited advertising sign. 
4. Installing advertising sign without a permit. 

For the immense sign on the scaffolding: 

5. Sign creates hazardous wind load. 
6. Prohibited advertising sign on scaffold. 
7. Sign exceeds the 40-foot height limit. 
8. Surface area for the sign is too large. 
9. Failure to get permit from Buildings Department.

We shall see!