Apparently it's standard practice whenever a foreign head of state pegs it. I can't remember the last one who did so I can't remember whether it happened. King of Spain maybe? I suspect if it was someone non-controversial, nobody noticed whether they did or not. It's in this case because a lot of people don't think they should, the fact that they have is suddenly news.
An incredibly tragic but not exactly relevant event. If they put them at half mast every time more than couple of people died in a day they might as well saw the top half off. It's the 'head of state' bit that's the tradition, not the relative awfulness of the event. They could have flown the flags at half mast for the tsunami, but there was no tradition of them already doing so.
In my personal opinion, the bloke was a scumbag who basically stole the wealth of a nation and repressed his own people, so he deserves nowt. But your royals are big on tradition and small on moral relativism.