I doubt they're looking at the aircraft in front of them. During taxi, over half of the crew's attention is spent inside the aircraft, not outside. That's not to say they are not looking out the window, they are, but they're not looking at the aircraft in front of them. Usually, the extension of flaps on a commercial airliner is reserved for the "takeoff" portion of the checklist and isn't done until right before takeoff. Also, just by looking at the aircraft's flaps gives no visual clue to observers as to how much the flaps are extended (5, 10, 15 degrees, etc...). Most large jets require some amount of flaps to be extended before takeoff as it helps provide additional lift for the aircraft to get off of the ground while using less runway.
So to answer your last question, I would have to say, unless they have everything done and have been waiting in a line for a few minutes and happen to notice an aircraft's flaps are in the up position, then maybe they may advise ATC, but again, flap extension is usually on the "takeoff" portion of the checklist and another pilot might not notice flaps being stowed (up) until that aircraft is on their takeoff roll. If that is the case, then extending flaps would be a bad idea as it may lead to a premature takeoff.
