Traditionally it has been difficult to lock down flash so that locally stored objects (flash cookies) are blocked - LSO's are not required for flash to work and are purely used for tracking. But, the latest version of Flash has completely changed its privacy system.
It now obeys the browsers settings.
So if you have IE set to delete all content on exit (like I do) the flash cookies will also be deleted.
Good stuff, but this does not prevent flash cookies in the first place – however, you can set flash to block all LSO’s by right clicking, choosing Global Settings and setting block options. This seems to work for all sites I have come across i.e. flash still works and nothing is created.
I assume this change has come about due to the new European privacy laws on cookies coming into force :-)
Note: if you do not want to block all cookies you still have to use the old method on the Adobe site settings page: http://www.macromedia.com/support/documentation/en/flashplayer/help/settings_manager.html. This is also the only place where you can turn off allowing third party flash cookies - browser settings are not used for this.