When I upgraded to 2.3, I left my 500+ categories in place. I used categories as tags, so didn't see the need to convert them over to the native tag format. I've thought about it some more, and just bit the bullet. All of my categories have been converted over to tags (I think), and now I'll use categories and tags in slightly different ways.
Categories will be used to define the "type" of post - work, personal, fun, etc...
Tags will be used to describe the "content" of the post - wordpress, rant, travel, etc..
It looks like a few Categories weren't completely converted over to be Tags, so I'll see if there's any manual intervention I need to do, but that's the plan for now.
I do REALLY wish the Tags field had autocomplete, as Drupal's freetagging input field does. It's soooo hard to remember the exact spelling/tense of all of the tags (is it folksonomy? folksonomies? etc... autocomplete would have me there at folks.)