I'd say it's legal in Texas then.  I live in Garland and ride in the D/FW area all the time.  I have seen several bikes with modulators on Dallas freeways and haven't seen them hassled by the police.  They are supposed to have a sensor that disables them when light levels are dim enough and they have frequency limits on the modulation.  I'd guess the cops in your area either aren't aware of the federal law permitting them or think they are malfunctioning (or maybe they're just harassing the bikers).  I looked through the TX motor vehicle code before purchasing mine and found no reference that should prohibit them.  I haven't installed mine yet but plan to very soon.

Here's a decent place to look up individual items without having to go over all the code.

http://www.txdps.state.tx.us/vi/inspection/item_insp.asp

or the full set at:

http://www.capitol.state.tx.us/statutes/tn.toc.htm

I would agree with that assessment.  I wish the laws were clearer myself.  Texas has provisions against flashing/alternating lights except for emergency vehicles and school buses, etc. too.  I believe that's one reason legal modulators aren't flashers.  They modulate the intensity of either the high-beam or the low-beam (not both) and do not allow the light to actually cease.  In effect, it dims and brightens within specified tolerances and at a specified rate.

I sent an email to the Motorcycle Safety Unit of the Texas Department of Public Safety requesting clarification on the legality of both headlight modulators and blue-dot tail-lights.  I seriously doubt the blue-dot lights are legal but I like the look of 'em, so I thought I'd ask.


Update:
I got a reply from the Texas DPS Motorcycle Safety Unit stating that the headlight modulator is legal in Texas and the blue-dot taillight is not.