Either way is just fine. It only affects the exterior projection of the windows.

mark
you can do it either way. Some new homes do not even have sheathing at window locations, rather foam only. Also houses that use thick foam on the exterior (say 1.5"+) typically always go over the foam if using a nailing flange. As long as the vertical drainage and flashing follows the wall down and over the window, you are ok.

My worry would be:
1) what if insulation board split from nail, what would then support flange?
Wouldnt flange be more secure flush with sheathing so there is no gap?
2) does any flashing other than sill pan go under flange? Flashing only on top of flange?

Most of the insulations have pretty good compressive strengths.

If you are worried about it, some folks fur out the exteriors where the flanges covers with regular lumber to the finished thickness of the foam.

You can use a sill pan and/or a 1-piece sill membrane.

Flashing (jamb and head) should go over the nailing flange.

WRB over that if you want to go the extra step. Drip caps are always a good idea as well.

i suppose looks wise, putting the flange over the insulation will look a tad nicer opposed to insulation board over the flange, as the window may now look a bit recessed?
then again with 1/2 inch board, the j pocket is 3/4 so i guess its a moot point.
thicker insulation ( 3/4 ) would require building out the casing?

Mark
There is a lot of info on details of windows and foam. Thin foams are typically quite easy to install and flash windows without having to add additional blocking or furring to the walls. Thicker the foam, the more the details change.
Check out Green Building Advisor for a lot of information on this and many other topics.

Here is a link that might be useful: Nailing Window Flanges through Foam

some windows do not come with a nailing flamge. my contractor says you can still do a new construction application with a window without a flange.. how is this done?

There are clip in flanges available for most windows but I prefer integrated (i.e. part of the extrusion) if they have it.

Integrated nailing flanges add a bit of structure to the window as compared to their clip in comparisons.

I'm not from the foam generation. Nailing the fin onto wood seems to me to be better than nailing it onto foam. I hope that foam runs it's course and we get back to solid building techniques. Anyone remember gyplap? I'm just not a fan of something just because it passes code and is called green.

Foam as a structural component in my world is a big no no, but foam is here to stay as an external insulation layer. Get used to WD.

He was saying you can do a new construction application even if there is no snap in flange either. How is that done?