I can see standards being an important part of the Army Arc, actually, with things like tactics and formation maneuvers built around the use of these and instruments.
With the present small militias we're used to seeing, there's not so much of a need for a regimental standard, but giving an officer a standard bearer and a musician could do things like enable you to alter your orders more efficiently in battle.
Another thing that would be worth implementing is heraldry - guilds, champions and officers could have their own heraldric symbols and gain a boost for their followers when their standard shows up on the battlefield. In non-dwarf mode you could earn yourself a standard through doing deeds for various kings and being appointed as a knight or general yourself.
In fact, that would be a useful way of doing large-scale battles in adventure mode (I haven't played it so stop me if this is irrelevent or not covered) - if ordinarily you can only give orders to a couple of companions, etc, you could use the standard-bearer/musician system to come up with a number of signals and strategies for your troops. Imagine riding out into battle with your personal squad of cavalry, luring the enemy into a ravine, and signalling your archers to pop their heads up and open fire while the infantry block off the exits.