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Seems the core autocomplete is jacked up again. Using the current 7.x-2.x dev with jquery_update 7.x-2.x-dev. To reproduce, set the jquery version to 1.7 and just go to node/add/article and try to add a tag. Then switch to bartik and try again-- works fine. So I don't think it's jquery_update. So far I can't even get any js errors in the console.
Still troubleshooting, but wanted to get this posted in case any one has stumbled across it and/or fixed it.