Phlashing is more than theoretical: it's been demonstrated at conferences, like London's EUSecWest security conference in May 2008. You're correct to point out that there hasn't been a widespread outbreak in the wild. Nevertheless, enterprises should fortify devices to protect against this type of attack.
The best advice I can give you is to never connect the management interface of a device to a public network. Doing so invites trouble by making it possible for an attacker to upload non-authentic firmware. Ideally, such devices belong on their own private control network, accessible only to administrators with a legitimate need to configure the devices.
Dig deeper on Denial of Service (DoS) Attack Prevention-Detection and Analysis
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