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I've asked around my local group, and nobody can give me a straight answer.  Dakka has a reputation of thorough and grounded rules explanations, so I figured I'd ask here.

Can you target a flamer template over a wreck (or any similar terrain, for that matter) or must you adhere to LOS rules? 

In order to better explain, here's the situation as it came up.  A BT squad deepstruck in a drop pod and deployed on one side of it.  During the shooting phase, the drop pod was destroyed, and a RW squad with a flamer came to flame some of the marines who had deployed from the drop pod.  Because of movement restrictions (the then live drop pod, the BT squad, and another bike squad in the area) the RW model with the flamer had LOS to only 3 BT models, and the remainder were behind the wrecked drop pod.

We looked in the BGB for the rules on template weapons, and read (I won't try to quote, as I don't have my BGB with me, and the specific words are important) that flamer weapons must always cover as many models in the target squad as possible without covering any friendly models.  What wasn't clear was whether the template should be laid on top of the wreck or not.  In the end, we didn't lay it over the wreck, and instead used the model's LOS, with the result that 2 of the 3 visible BT models were under the template.

You lay it over the wreck if it covers the most models from the targeted squad. Lets say that you can cover six marines. You roll six dice to wound and the opponent makes armor saves if possible. You remove only models that are within LOS. So, if he/she failed 4 saves, they only lose 3 models.

It didn't have to be a wreck either. You could have place the template over an intact vehicle to hit the models on the other side had that situation presented itself (although you probably would have been targeting the vehicle in that instance).

The only thing that matters is that you can only remove casualties from within LOS. The Vehicle and the Wreck both physically block the exact same amount of LOS, making it hard to actually wound anything on the far side.

Okay, then that generates a different question (one that also came up recently).  If I have a squad of genestealers deployed in a line in a wood, and the shape of the woods means that some genestealers are 5" deep and others are 7" deep, and a squad of terminators that includes a heavy flamer targets them, can he kill the ones that are 7" deep?  Those were the only ones in range of the heavy flamer, but he couldn't see them.

I guess the reworded question is this: does establishing LOS from one squad to another determine the casualties that can be taken?  In the wreck example, the template reached to a large percentage of the squad, but only three were in LOS.  In the forest example, the template reached to three genestealers who were not visible (and it could not have reached to any of the visible genestealers.)

If the answer is yes, then you place the template as you like, and then take as many models as casualties as you like, subject to the standard LOS and range rules and the flamer is reduced to a 6" weapon. This seems odd, given that a flamer "ignores cover saves" and by implication intervening terrain.

If the answer is no, then flamers gain a significant amount of power as weapons that ignore all terrain, and can kill any models within their 8" range, subject to the rule of not touching friendly models with the template.

Neither of those options seems satisfactory to me.

The models 7" deep can be used to determine how many models are hit by the flamer, but only models which are actually within LOS (<6" can actually be removed as casualties.

The flamer template is the flamers range, not its LOS.
Casualties from a flamer hit need not be removed from under the template itself.

In your example, if the Flamer hits and wounds 3 models that are 7" back, but there is only one model in the unit that is 6" or less into the terrain, then that one model is the only one that can be wounded. The other two wounds are discarded.

When firing into terrain, everything, except barrage, is "reduced to a 6" weapon" (as you put it) for casualty removal purposes.