I'd say that, to flank such a creature you'd have to take a 5' step out of that square so that the creature is between you and your ally, as in a standard flanking.
I think you cannot flank a creature with whom you share the square.
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That's a quick one... is somebody under a Displacement effect not sneak-able?
As a side note, does it prevent an AoO as well?
Relevant rules:
Sneak attack wrote:
The rogue must be able to see the target well enough to pick out a vital spot and must be able to reach such a spot. A rogue cannot sneak attack while striking a creature with concealment.
Combat wrote:
Total Concealment:
You can't execute an attack of opportunity against an opponent with total concealment, even if you know what square or squares the opponent occupies.
Displacement wrote:
The creature benefits from a 50% miss chance as if it had total concealment. Unlike actual total concealment, displacement does not prevent enemies from targeting the creature normally.
