I think I just witnessed a moderator decline a flag raised on his own comment. (I'm hesitant to discuss specifics unless I have to, as I don't mean to put anyone in a negative light.)
Since there are at least 2 other moderators per site, I'm not sure this should be allowed—I feel that either
only uninvolved moderator(s) should be able to view and handle flags on co-moderators' posts, or
moderators should be able to view all flags, but a flagged moderator should not be allowed to decline a flag against him- or herself.
I have no personal issue with this moderator. I just felt in this case that there was truth in both sides (the moderator's as well as the flagging user's), and sought a win-win solution, i.e. by improving the disputed answer. Coming back an hour later to see that the moderator unilaterally declined the user's flag—that didn't seem fair to the user...
I am making some assumptions based on the "Last Seen" stat in the moderator tools, so if I'm simply mistaken on what happened, I apologize in advance.