It does look like a flag. I wonder if that intentional or has a hidden meaning?

If I remember correctly, I think ArenaNet change the name of the main city because it had some real world meaning in another culture / language.

ArenaNet does like to base areas of their game on real world locations...

Ascalon - Caucasian (medieval)
Cantha - China
Nightfall - Factions
Eye of the North - Norse (norn) / Asura (Aztec)

Perhaps the sequel has some middle-east elements of the game.

Crescent moons and stars are pretty ubiquitous symbols throughout history, religion, and fantasy. Heck, my own guild has used them, beginning in a sci-fi setting. My best guess is that it's meant to be Gandara, which in Nightfall was a crescent-moon-shaped fortress/island.

@photics: It would be unfair to characterize the expanshalones as being homogeneous to one culture or another. Factions' western areas have lovely blends of Chinese and Korean art, while the eastern areas are split between a Greek-inspired sea people, and a German Gothic black forest people. Ascalon, as you mention, is merely one of the areas in Prophecies' Tyria (subsequent areas include two Northern European-inspired locations, a fairly generic tribal area, a desert/jungle run by druids, a vast and empty desert wasteland, and a chain of volcanic islands.) Nightfall's continent of Elona blends several Northern African, Mediterranean, and Middle Eastern cultures from various time periods.

And the Asurans aren't Aztec. Most of the Asuran locations and art were actually intended for Utopia, the expanshalone that was scrapped (in favor of GW2) and replaced with the much-more-hurried GWEN. Extant art was reused. And Utopia wasn't Aztec-themed, it was Mayan.

The wonderful mix of fantastic locations and art is probably one of the best things about this series. It's so rare to see fantasy versions of some cultures in western games. More, please.

Guild Wars' art team has no betters. I am using art from the first game as wallpaper as I type this.

Guild Wars Nightfall concept art
It's actually a city/bas ein Kourna called Gandara, the Moon Fortress. The Consulate Docks mission originally takes you there and the Pogahn Passage mission takes you back.

http://guildwars.wikia.com/wiki/Gandara,_the_Moon_Fortress
http://www.conceptart.org/forums/showthread.php?t=83394