First, I don't see how a red dot is less visible than the red background. Its just smaller. But its as strong a visual cue as before. Second, how would a customisable system as you suggest accommodate for the fact that the filesystem allows multiple tags? Third, you can configure the tag column to be permanently visible in finder if you want to have more detailed information.
Finally, there are smart folders which for all intends and purposes seem as a superior tool for what you want to do.
OK... I do get the point (a few points mentioned in the thread actually, like an app injecting code and all that), but let me make a point that I might have already made in some earlier comment - YES, there are smart folders and all that, and well, for some people a red dot is not as strong a visual cue as the whole folder line being red! My point is a matter of accessibility - what Mac used to do was to cater for a particular clientele, mostly professionals in the visual arts, who have particular needs... now it is catering to the masses. Fine.... but lets take PEOPLE WITH LEARNING DISABILITIES where visual cues are crucial - I need to have various files in the same folder that have different colours because the tags are not there to tell me that they pertain to the same group, but to tell me, for example, that the file still needs editing, while the file underneath it needs something else, but both files pertain to that particular folder and need to be underneath each other. It is totally useless for me to do a search of all the files with the red tag or whatever... What the colours are doing is helping me organise my folders and what is in them to "sync" with my atypical brain and the way it organises things. The coloured tags, very visible and easily identifiable do just that.
So it is not about who's right or wrong or what alternatives there are INSTEAD of the colour tag system... it is the FUNCTION, or rather the PERSONALISED FUNCTIONALITY that I could do with the whole file or folder line having a particular colour. And yes, the first colour is important, but having other colours underneath is as useful... one example - once I have dealt with what that first colour is telling me and I take that colour out, the next one in line comes up, which gives me a visual cue of what else I need to do with that file. So, it may be useful to have two tagging systems - one which shows dots, so it is showing me all the colours one after the other, and the one that needs my attention as soon as I open the folder.
The above is just an example. Other people will use the colour tags in different ways, depending on their needs and accessibility issues.
Finally, for me, the desktop folders are of primary importance, and they need to be colour coded very strongly - a dot doesn't do it for me. I need the highlight or I could very easily miss seeing a particular folder completely.
So what APPLE needs to do, is to see how these things are being used, by whom and why (and not just what the programmers came up with, or the focus groups or whatever...) there needs to be a constant knowledge exchange with users, who need to voice how they use the products. Otherwise, having 10 people complaining about this or that won't get APPLE to spend the time and money to put something back or improve on what they currently have.
S