As a Babaologist myself, here's my breakdown of what I believe this rule is stating.

(1) And (2) Is Not Win:
Objects which match the description of either (1) or (2) cannot be Win.

(1)
[(Not Lonely) (Not Baba)],
[(Not Facing) (Not Wall)] And [(Not Near) (Not Rock)]:
Stacked objects other than Baba, which aren't facing a non-Wall object, and aren't adjacent to a non-Rock object.

(2)
Not Flag:
Objects other than Flag.

Therefore, the only object which can still be Win is Flag, as long as it also meets at least one of the following conditions: it's alone on its tile, or it's facing a non-Wall, or it's adjacent to a non-Rock.
(The Flag must also not be Baba in order to be disqualified by (1), but this is always true.)