using javascript variable conditionally in JSON

I think you're misunderstanding how the web works.

PHP is a string processing language. All it does is generate strings. Since the javascript is just a very large string to PHP we can replace it with another test string to get a clearer understanding of what's happening. Lets replace it with "bla bla bla..":

bla bla bla bla bla bla
<?php $a=",hide:'true'";?>
bla bla bla bla bla bla
<?php $a=",hide:'false'";?>
bla bla bla bla bla bla
<?php echo "$a"?>
bla bla bla bla bla bla

Let's now simplify that:

<?php
    $a=",hide:'true'";
    $a=",hide:'false'";
    echo "$a";
?>

This is what php executes. Therefore, it outputs the string:

bla bla bla bla bla bla    // note: you're not outputting anything here
bla bla bla bla bla bla
,hide:'false'
bla bla bla bla bla bla

Now replace the "bla bla" with a simplified version of your original string and the output becomes:

<script type="text/javascript">
function rowdata(epsflag,respflag){
    if (epsflag==0) {
                    // note: you echoed nothing here in PHP
    }
    else {
                    // note: you echoed nothing here in PHP
    }

    $("#flex1").flexigrid({
      colModel : [
        {align:'left',hide:'false'}  // logically, it's always false
      ]
    });
}

Now, if you've been following my explanation and have suddenly realized that PHP doesn't process javascript at all and the browser doesn't see PHP at all then you'll realize that this is a duplicate question of: What is the difference between client-side and server-side programming?

So. Now that we understand how the web works, what to do to solve your problem?

For this very specific problem I notice that you don't need to actually pass anything at all back to PHP. All your're trying to do is change a value in a javascript object. So why use PHP to manipulate the javascript source code when you can just use javascript to change the value directly? Doing it in js:

var wavedata = {
    display: 'Wave Name',
    name : 'wavename',
    sortable : true
};

if (epsflag==0) {
    wavedata.hide = 'true';
}
else {
    wavedata.hide = 'false';
}  


$("#flex1").flexigrid({
    colModel : [
        // other data
        wavedata,
        // other data
    ]
});

Or if you want to keep the source as close as possible to your current code then do what Grundy suggests, only since you want to set the value to the string "true" or "false" change it to:

{/* ... */ align: 'left',hide: epsflag==0 ? 'true' : 'false'}