I am fairly sure your answer lies in the error message.
The auditor was enabled as the server sent neither an 'X-XSS-Protection' nor 'Content-Security-Policy' header.
I guess Google wants you to be super-duper sure that you want to allow XSS. Try running a local server that returns either of these headers:
- X-XSS-Protection
- Content-Security-Policy
This can be pretty annoying if you are trying to do a simple demonstration using a locally created file, but it is in our best interest, I guess. It may be that Firefox/IE are worth a shot if you just want to see/show how XSS works, but don't want to set up an http server.
EDIT: also make sure you close all instances of chrome when you run a command line.
--disable-xss-auditor
instead.