The use of categories for listings and their interactions with tags has been a recent headache as changes in the Etsy API occur. We uploaded a new version tonight which went with the "new" way to fix several issues only to find out that a bug on the Etsy side will prevent tags from changing when the category is two words. We are working to resolve this, but for now be aware of it. Mystified?
Here is the bottom line: Updating some tags will cause issues, but this will come out as an error message. This should ONLY affect tag updates as far as we know.