Here's my take on the reason.

JMO and all, but it feels right...

I was very happy to see tags for our library, something Steam hasn't managed to implement yet, but there are a few problems with the system as it stands.
1. Only a single tag appears on the game listing, even if multiple tags have been applied. I would like all tags there is room for to appear, with ellipses if there are too many to display at once.
2. When you create a new tag, it appears at the top of the list. This makes sense if you're about to use it to tag a game, but it makes less sense when you come back later and find out the tags are not alphabetical. It should be possible to list tags alphabetically.
3. The worst part of tags as it stands is that sorting by multiple tags does not work properly. If I select my "action" tag and my "adventure" tag, I am looking for games that are BOTH action AND adventure (like Beyond Good and Evil), not games that are either action OR adventure.

Some bugreporting here.
Something is just updated, so I'll try to illustrate the bug in the library.
1. A number (1) is shown near ACCOUNT menu and LIBRARY menu item.
2. Clicking on LIBRARY menu item in ACCOUNT menu.
3. There is no indicator that there is something updated near the MY COLLECTION (...) title. UPDATED (0) is shown in the MY COLLECTION menu.
4. Refreshing the page.
5. My Collection (..., 1 updated) is shown in the title. UPDATED (1) is shown in the MY COLLECTION menu.
6. Selecting the UPDATED (1) menu item in the menu.
7. An updated game (Quest for Infamy) is shown.
8. Clicking on the game image.
9. Refreshing the page.
10. My Collection (..., 1 updated) is shown in the title. UPDATED (1) is shown in the MY COLLECTION menu.
11. Selecting the UPDATED (1) menu item in the menu.
12. "No results found".

As you can see, something in (3) and (10-12) is not right. At first an information about updated game is not shown until page refreshing, then this information is still shown when it is not correct any more.
Firefox 37.0.2

The new skins mentioned better have a completely dark theme included. Though not that it really matters, because the Pitch Black Firefox userstyle exists.

Firefox bug. I had the same problem. After updating to the latest version and removing some add-ins, it began to work. OTOH, Chrome seems to work perfectly without any tweaking necessary.

I also had to manually refresh the library page to get the updates.

Then I will hunt Judas till the end of times until he tells me exactly which of my games got updated! ;-P

All I'm saying is that update notifications and tags on game cards have their use, and since we have them they should be more visible, clearly noticeable, regardless of the device one uses to access their games. The fact that we have the drop-down menu is not reason enough to drop them.

Another point I made is that I think it's a bad idea to use the same, tiny blue dot for both updates and new games. The respective tags should be distinguishable from each other, and the old red ones, the purpose of each one clearly labelled, were doing a damn fine job at that. Why they were dropped in favour of this dot system is beyond me.

Indeed, removing the update flag already when the changelog has been viewed is not a good idea. Please either remove the flag only when the updated game has been downloaded (not sure if that's possible) or make it a manual act.

Updated Firefox. I'll keep an eye out the next time I get a flag.

I hope they do it right, but I fear that it won't solve issues like games belonging to a series, anthology or compilation that were unbundled and their titles have nth to do with each other, like Planettfall from the Zork Anthology (which incidentally has no Store Page link), or the fact that Return to Zork will never be anywhere near the other Zork games. Without any form of manual sorting, this sort of issues will always exist.

Yeah, this thought had occurred to me as well. I'm also hoping they figure a way to get it to sort properly, but I have some concerns.

Quoting for highlighting the issue.

Just had a 'library' notification I couldn't trace back. Not sure if this is related to the blue dot I see next to Master of Magic. I am not sure how this will be handled now.

Probably. I can name a few more: Chiness Chess (aka Battle Chess 2), Post Mortem (part of the Still Life series), SWAT3 (part of the Police Quest - SWAT series), Riven (aka Myst 2), Real Myst, Softporn Adventure (comes with the Leisure Suit Larry series), Memoria (follow up to The Dark Eye: Chains of Satinav), some of the Ultima titles...

Addition to my post #595 regarding the Game Collection page.

Pagination

Not a fan of it, as it further breaks the sense of having a complete game library, but will live with it if there's no way to have an alternative. But it needs a very serious improvement.

The page indicators and arrow-buttons are listed only at the very bottom. Since we're locked to using by title or purchase date sorting, it's impractical and inefficient to have to scroll all the way down the page in order to navigate (via the arrows) or jump (typing the page number) to the section of the game collection we want to access.
It makes a lot of sense to add them at the top as well, so one can make their choice right away.

And before anyone says "but you can now filter!" - filtering is not the answer to everything; it hides everything that does not meet the filter-criteria, and sometimes it's about the relative place of a specific game in the collection.

One more (relatively minor) issue about this is that it's not immediately clear that one can type in the page-number box. Since you seem to be such big fans of drop-down menus, perhaps you should consider applying one here too.
Another suggestion I read was to display the number of pages, like in the forum; I wouldn't mind this, but I doubt you'd do it this way.

EDIT: a post by user eiii, reminded me of something else in relation to this.

Chamb said in their OP here about pagination [emphasis added]: This almost sounds like you're considering to offer us the option to change the default size. If so, it would be a very good idea to also offer the option to display our entire collection on a single page. There's already an entry in the Wishlist for this.

This is just an aesthetic thing really. I think there was quite an improvement with all the new welcomed features, some of which were old wishlisted items but on the other hand I liked the old look (not talking about features here) of the wishlist and the library. They had maybe more personality with the paper wishlist and the game boxes on the shelf.
I guess the new design matches the rest of the UI of the site better, though the old one matched the feel of the site better in my opinion.

The new functionality and capabilities are welcomed though.