Basically the main advantage is your keyword will have more density, and if the category + tag is named in the url this can help. Also the tags may be included in your html with more weight such as bold h2 h1 etc
Personally, I avoid using TAGS on blogs because they create duplicate content. Think about it. If I use TAGS then I add <meta name="robots" content="noindex"> to EVERY tag page to prevent the duplicate content from being indexed. If the tags pages do NOT contain excerpts from the posts or the entire posts that match that tag and ONLY shows links to the posts with that tags then I would allow the tags page to get indexed since none of the content from my post or excerpt will be duplicated. ags are more of a usability feature, typically not really an SEO feature... More times than not it's an SEO liability because they usually create even more duplicate content on the site. This post on SEO Tips for configuring WordPress might explain it in more detail.
Cloud tags are rarely used by humans and often result into duplicate content. I prefer to set noindex for tag pages.
So you guys would recommend against tag clouds in all cases? I read a compelling article about them allowing "entry" pages from search engines
Is a hard question my friend , it all depends on wha your using i think, are you on wordpess or joomla ? are very good for site navigatiom too , google loves user frindly sites. Tags are more a feature for the use of your website but if optimized correct they can benefit you in a great way. But if not is has the oposite effect leaving lots of duplicate content as jitendragg said. The best way is to try each method for a few months. I dont think there is a perfect web master out there, we are all constantly trying new ways
Tag clouds that are created through flash are the best of kind. They don't create duplicate content issues and can act as a sub navigation to your website. SEO perspective? I'd say it is still useful. It wouldn't still be around if they aren't of any use.