So many ideas,
Marc Pasquin's is especially interesting.
Could you take the first flag and make it so that the compass star doesn't touch the outline of the circle? Perhaps come up with some other star that doesn't correspond to NATO so directly?
I came up with a few new designs which I quite like and think look good and close to the original but less busy.
The first one is based on your request to make the compass star smaller, and I changed the design so it is different from the NATO compass star.
I like this next one because it incorporates all the elements of the original, stars, compass star, but arranged in a way that it isn't all in one place making it look busy. The compass star goes on the upper left quadrant, and the stars are geometrically arranged and are the lone central element unencumbered by the compass star. I also gave the stars a different four sided look in order to keep with the compass star theme, but instead of eight points like the main compass star I made it four pointed so it would look a lot less busy and better, and congruent with the rest of the design. I wanted the stars to not be a copy of the American vexillological design philosophy, so four pointed looks better, unique, while still keeping in with the spirit of Arcasia being more or less an analogue of United States.
Please tell me what you think, coming up with these designs is a bit more work than I thought at first lol.
EDIT: I made another adjustment, I changed the compass rose to look more like the one on the original Arcasian flag!