I would say your caution shouldn't only apply only to flirtatious relationships, but rather any interpersonal relationship at work that becomes too casual.

I work in a small shop and was hired as the third developer, about 4 months after developer number two. Of course, Number 2 and I became friends pretty quickly and we would hang out outside of work on occasion. That is, until one day when some totally insignificant disagreement resulted in threats of physical violence against me. Needless to say, I didn't enjoy that, we never hung out again. I brought the comment up with management (the company owner) and as far as I can tell nothing came of it.

Now, as our company and development staff has grown the owner has put this same guy in a managerial role that I have to answer to, and because of our history, it's becoming more difficult to stay productive in our interactions.

In other words, friends in the workplace can be a good thing, but if it backfires, and especially if you're both candidates for advancement in the same department, the repercussions could have you polishing your resume.