It took a lot longer than I expected (everything takes longer with a toddler in the house), but I am finally caught up importing and tagging my digi collection into iPhoto. Like I promised, here is a post documenting what my system looks like. I think it will be interesting to look back sometime and see how my system evolves.
Two things I did to tweak iPhoto:1. Moved my DigiScrap library so that iPhoto imports to my internal hard drive. No matter what app I used, it was just too slow to work off an external drive. I plan to archive completed layouts and older or used kits to external at some point, but I've got 250GB internal, so the 20GB I've got in digi elements isn't an issue, and its worth the time savings.
2. My DigiScrap collection is separate from my Photo Library. iPhoto 08 can have separate libraries of photos. To set that up, hold down the Option key when you open iPhoto. It will bring up this screen:

Select Create Library, name your library, and you have a blank slate ready to start. To get back to your original Photo Library, quit the app and hold down the Option key again when you open iPhoto. Click Choose Library and you can choose between the two you have. A bit of a pain to switch back and forth, but worth it to me to keep my photo library separate.
The first thing I do is import the kit folders into iPhoto. Go to File --> Import to Library and select the unzipped kit folder(s). If a kit has multiple folders, iPhoto will create multiple Events for it, so go to event view and drag and drop all the Events into one. Once all parts of a kit are in the same Event, I name the Event/Kit using this structure: Kit Name (Designer Name). (click photo for detailed view).

After naming, double click the Event to go into Photo view. I then tag each individual piece of the kit. Papers are tagged by paper, color, and either solid or whatever the pattern (stripes, circles, etc.). Elements are tagged broadly (ribbon, star, frame, brush, stamp, journal). As you can see in this example, I tag the Preview/Folder as preview, and kit (or minikit, or paper if it is papers only). This is important for my other sorting systems.
Click on the photo for a clearer view:

After the kit is tagged, I drag the Preview picture (only the preview, not all the files), into the Styles Albums on the left that best represent it. So for this kit, I dragged it into Masculine and Natural b/c of the colors. The reason why I do this is so that I can preview kits, by style or theme. If I see a kit I want to look at further, I type in the kit name in the search box at the bottom, and that brings up the whole kit. You can see the Styles and Themes that I sort by. For styles, I've got paper manufacturers in parentheses to help remind me what type of kits are in there - I don't know many digi designers by style, so this gives me a frame of reference. You can also see that I have over 10,000 items in iPhoto, and it still scrolls quickly (click pic for detailed view).

That is the basics of what I am doing. In another post, I'll show how I use iPhoto Smart Albums to auto group quickpages, templates, card templates, and kits by designer.