Being grappled gives many penalties but nothing related to flanking and attack modifiers.
A grappled creature is restrained by a creature, trap, or effect. Grappled creatures cannot move and take a –4 penalty to Dexterity. A grappled creature takes a –2 penalty on all attack rolls and combat maneuver checks, except those made to grapple or escape a grapple. In addition, grappled creatures can take no action that requires two hands to perform. A grappled character who attempts to cast a spell or use a spell-like ability must make a concentration check (DC 10 + grappler's CMB + spell level), or lose the spell. Grappled creatures cannot make attacks of opportunity.
A grappled creature cannot use Stealth to hide from the creature grappling it, even if a special ability, such as hide in plain sight, would normally allow it to do so. If a grappled creature becomes invisible, through a spell or other ability, it gains a +2 circumstance bonus on its CMD to avoid being grappled, but receives no other benefit.
Casting Spells while Grappled/Grappling: The only spells which can be cast while grappling or pinned are those without somatic components and whose material components (if any) you have in hand. Even so, you must make a concentration check (DC 10 + the grappler's CMB + the level of the spell you're casting) or lose the spell.
As long as your rogue has the appropriate weapon, he can still flank with the help of his allies and deal sneak attack damage, if he hits.
By the way, grappling is a risky action against a group of enemies exactly for this kind of reason : even the grappling creature limits its own options and opens itself to attacks from everyone not grappled.
