This underwater levels is full of hiding bloopers and huge boulders that destroy everything in their path.
Start by going into the pipe to enter the underwater cave. You'll immediately see a roulette block, which can potentially grant one of several power-ups, including the coveted Gold Flower. Immediately afterwards, you'll see a Blooper come out of a yellow pipe. These enemies will have to be avoided unless you have the power-up to destroy them. Fortunately, you can outswim them. Nearby, there is a purple pipe you can go down to skip ahead a part of the level and turn scores of blocks to coins if you have the Gold Flower.
Once you leave the pipe, or if you continue ahead, you'll have to avoid a falling boulder, which destroys everything in its path except the ground it's on. As you hit the P switch on the roof and follow its trail of coins, you will see another boulder. Avoid it at first, but then follow it. It will destroy the barrier between you and the first star coin, allowing you to grab it. The second star coin will be down the yellow pipe where you found the second boulder. Inside is the coin guarded by a bunch of bloopers hiding in pipes. Swimming quickly across the screen, chasing the moving star coin, is the key here.
As you emerge in the main chamber, you'll see the midpoint flag nearby. Hit the second ? block to the right to get a Fire Flower. After the Red Ring guarded by a Blooper, you will see a P switch. Hitting it will reveal some coins and unlock the pipe they lead to. Inside is another switch and hundreds of coins to collect in a limited time. Keep on swimming against the waves of hidden bloopers and falling rocks until you see one that takes up half the screen. It will destroy the barrier preventing you from reaching the third and final star coin, so follow it the same way you did for the first star coin. Then, it's a short trip to the pipe to the surface, and with it, the flagpole.