Great topic, gentlemen. I guess to be a good accompanist you have to know the palos and all their harmonic variations, and the lyrics can help you to identify specific coplas, because one malaguena or fandango (for example) can have a quite different pace and feel than another.
I just saw this wonderful video of Agujetas with Manolo Sanlucar. What is remarkable about Sanlucar's accompaniment is how self-effacing his playing is: no display of virtuosity, no falsetas, just a few licks to fill the silence, careful pacing of the compas, and at the end when Agujeta hits these mythical notes, even Sanlucar runs out of chords, just mumbling a few suggestions of E7 or may be A, because if nobody notices you but the singer shines, you probably really did well. And then there is the other example (along the lines of what Tomas wrote): Spanish language skills and tons of fancy falsetas alone apparently don't make a good tocaor. Luis EL Zambo clearly deserved better.
Saludos
Roland