Support PNG Flags

looking at the .module code it seems

function country_flag_by_code($country_code) {
  return file_create_url(variable_get('ip_locator_flags_directory', 'flags/')
    . strtolower($country_code) . '.gif');
}

you could change the .gif in the above function to .png

you may also want to change

$form['ip_locator_flags_directory'] = array(
    '#type' => 'textfield',
    '#title' => t('Ip locator flags directory'),
    '#default_value' => variable_get('ip_locator_flags_directory', 'flags/'),
    '#size' => '',
    '#maxlength' => 1024,
    '#description' => t('Subdirectory in the directory files/ from where the flags will be loaded.<br />Only gif image files are accepted.'),
  );

where the decription talks about .gif to remain consistent