First off, get rid of this:
Code:
INTCON     = %11000000 ' INTerrupts CONtrol; GIE=1, T0IE=1
You're polling the TMR1F flag (PIR1.0), so you don't want to enable interrupts since there's no ISR to handle them.
Weird things are going to happen.

Secondly, with this
Code:
    IF Flag THEN
        Flag = 0
        TOGGLE PORTC.0
    ENDIF
You're only going to toggle PORTC.0 when Flag=1. Setting Flag back to 0 is going to screw with the next time TMR1IF gets set since it's now 0 (again).

If you want to use 'Flag' then you could do
Code:
IF Flag THEN
   PORTC.0 = 1
ELSE
   PORTC.0 = 0
ENDIF
or
Code:
PORTC.0 = Flag