First, don't confuse Paleo with South Beach. They are not interchangeable. Paleo is not even necessarily low carb (although many of us adapt it to be so). SB is definitely low carb.

Second, if coconuts were considered fruits, which is disputable, fruit is not allowed on SB phase 1. Even if coconut flour is derived from nuts, that's kind of beside the point because what it really is, is a substitute for regular flour. I followed SB all the way to goal and kept strictly to the allowed foods. Coconut flour and all other substitute flours were not included, especially in Phase 1. The beauty of this w.o.l. is discovering for the first time ever (for most of us) that it's possible to live without floury stuff - pies, cookies, etc. Continuing to bake them with substitute flours prevents your taste buds from learning how unnecessary they are. That said, after the initial re-training period, many people do add back VERY SLOWLY AND IN VERY SMALL QUANTITIES some floury carbs. It's definitely risky to do it (reawakening cravings) but some people manage it. Others unfortunately gain back every pound they lost and have to start all over again. Plenty of those stories can be found on this board. If you decide to, then coconut flour, almond flour, and flax meal are much better and less risky choices than any kind of wheat flour. Good luck on your journey!