Personally I think it's a judgement call on your part. If you've told her (in a firm, but respectful way I hope) that you don't like the way she flirts with this guy, and she doesn't care, well I think you know what the deal is. If she wants to stay with you and truly cares about you she shouldnt have any problem making her friendship with this guy seem more innocent.
That is, if she really is getting all flirty with him. Take a step back and see if you're just getting a little jealous. It happens to the best of us man. I know what you're saying about myspace though... lots of whores out there on myspace.