- Switch to WordPress
That pretty much covers it. My one-step process will solve all of your problems.
Unfortunately, the comments are off over there so I can't leave a note of appreciation!!Update 2/3: Alright... Clearly my attempt at dry & ironic didn't translate into prose, so a debate has developed and clarification is required. To be clear: This is a categories solution, but not one that I advocate. As some commenters have pointed out, Wordpress have categories pretty much nailed, but there are limited options for template editing, and for customising your blog... Obviously I believe the advantages of the del.icio.us system (custom & multiple tags, exposure on tag search engines, interactive output thanks to FreshTags) and the tools that have been developed to integrate tagging (most especially Johan's script and the BlogThis! extension that adds tags) make it worth the effort to stick with Blogger. If I could afford hosting I might consider WordPress, but blogger is the platform of choice for those of us who want to blog for free.
Which brings up WordPress.com. Your URL is going to be a subdomain either way, so why not go w/ the platform that has the most custom options?