When there is only one matching tag that appears in the pop-up results, and I try to navigate to it with the arrow keys, the tag gets automatically selected and the pop-up disappears.
That's precisely the behavior that I expect. If there's only one tag available, then I don't need to use the arrow keys to disambiguate between multiple choices. I want that one…right there!—the obvious one, you stupid computer!
Then, of course, when you press Enter, the default form button is triggered—the one that submits your question. I suppose you're arguing that is the unexpected behavior, but I disagree. It's now expected because the tag selector dialog was dismissed. It doesn't really make sense for your key presses to be interpreted as controlling a UI element that no longer exists. Yeah, you do have to glance up at the screen periodically. I don't know how we fix that.
Are you seeing something different in your browser? This is what I see in Chrome v19.whatever (stable). If you're seeing something else, which one of the cornucopia of options are you using?