Making genres more specific and granular just makes categorization more confusing and contentious. But use of multiple tags to categorize a song could allow different people to simultaneously apply the labels they prefer.
Or perhaps a better solution would be "x sounds like y, z, etc."
Very much so; I've lost count of the number of times I've wished that players would recognize more than one genre tag; heck, even allmusic.com had multiple "styles" for their listings.
Of course, the real problem is human language, it's subtleties, and how people (ab)use it.
Huh, that's interesting. Did you discover that with internal analytics or a survey, or an outside source?
If it's something internal, you could blog about your discovery. It would make an interesting read for us music nerds.
If by tags, you mean user-driven categorization by arbitrary text, that's an even harder problem. Tags can be spelled differently and mean the same thing. Or they can be spelled the same and mean completely different things. What you mean by "punk" and what I mean by "punk" are different. Possibly radically different. If tags are to be useful at all, you still need one authority who decides specifically what each tag means.
The problem isn't with genres, it's with trying to put bands in them.
Take a look at some of the weird tags you can find on Last.fm. It's valuable, but different than "categorization." It's more like "relationship."