In current SVN version of WordPress 2.2, there is native tagging function support. However, there is conflict with UTW. The tag search function (both /tag/tagname or /index.php?tag=tagname) is not function at all, no result is return.
Someone may think that if I raise this issue at the wrong timing. However, I think Christine should start to prepare the solution 'cos UTW is the de facto standard of tagging in WordPress. If WordPress 2.2 is released before the solution is provided, a lot of people will suffer.
I tried your suggest as well and the only instance of is_tag( in ultimate-tag-warrior.php in UTW_is_tag() and I don't think you are referring to this instance, right?
Also, the "Update" section, you say to change is_tag() to UTW_is_tag() but when I use Dreamweaver to search all of the code in my theme, it is not found at all.