The development of the taxonomy component is well under way. The basic skeleton is done, data model and the first API (mostly towards plugins). There is a Term Manager and Taxonomy Manager working, and while it doesn't offer any hierarchical visualization of taxonomies, it is quite useful right now.
Have a look (it has out-dated Joomla looks, but well, it's designed for J!1 right now).
Joomla needs a taxonomy extension. I've started working on such a taxonomy component for Joomla, allowing complex hierarchies of content and multiple categories.
When I first set my foot on the land of Joomla! over a year ago, I pretty quickly started to like the flexibility and hackability of Joomla!, until the moment I needed to migrate it to a more recent version... But this is not the subject here. I have also discovered a major flaw - very rigid and simplistic taxonomy. The sites I've been working on at that time started then to discover that this single section - category approach is pretty limiting. When I have created my custom solution towards multi-site Joomla installation, my major problem started to be exactly this - how to create separate taxonomies for separate sites?