The real answer to this question lies in the fact that there is no such thing as a duplicate content "penalty."
Duplicate content is viewed as a LACK of good content, not as something to penalize you for.
Google sees all their links around your blog, from tags to categories to other internal links all as a good thing... They even say so. However, when those tag and category pages have duplicate content in the form of post excerpts on them, then googlebot looks at them as pages and thinks, "that isn't original... Next..."
The best thing to do, if you have a way to do it with your theme, would be to place a chunk of original content on those tag and category pages. (And therefore index all pages.)
There have been many plugins created with the intent on doing exactly this, namely:
1. Category Page by Pixline
2. All Category SEO Updater by Bradley G. Smith
3. Tui's Category Intro For Archive by Stephen Baugh
-However all three of these plugins appear to be completely broken right now and I too need to find a replacement for this functionality!
Anyone out there have a lead for us?