Hey Raj,
The problem with flatworms is that contrary to what you might think the pictures actually look better than what it actually is. These are just the ones that you can see. Under the rocks, in the sand, and in all the little crevices I can guarantee you that there are 1000's more and from the looks of it and the size of your tank maybe hundreds of thousands more.
I'll be glad to talk about this with you tonight when you come by. I used Flatworm Exit on my tank but I only have a 30. I also did a lot of research before I used it so I can share some of that with you.
From those pictures I would only use FE as a last, last, last resort. However, if you do want to completely rid yourself of the problem you're going to need patience, lots of water, a six line wrasse, and any other natural predator you can get your hands on and then maybe some FE.
If you can keep these guys in check they are not completely detrimental but the big problem arises when you skip a water change or something and they multiply like russian dwarf hamsters but faster.
As for your corals, you may not think so but they could very well be the cause of that coral death if you have any of these: AEFW (acropora eating flatworms). - http://www.melevsreef.com/aefw.html">http://www.melevsreef.com/aefw.html</a>
However, from the picture you can tell that you have red planaria...which is a good thing compared to having the AEFW. Here is the procedure I used to remove them from my tank. Like, I said, we can talk about it tonight. This should be your last resort.
[IMG]http://www.melevsreef.com/flatworms.html">http://www.melevsreef.com/flatworms.html</a>
Good luck.