First, my problem was different from yours - I got 404 on all sidebar links in my All-In-One Event Calendar. Updating to the latest WP SEO fixed it. And I have WP 3.4.2, pretty up-to-date, and my update to WP SEO is to 1.3.2, newer than yours.
I did see a fix in the changelog that relates to categories and tags.
With those big caveats, who knows, if you get no other response, I hope this helps you. btw, if you're quite nervous about updating, you could have your developer back everything up (files AND database) and give it a go. Your WP version is pretty long-in-the-tooth, and that always becomes an issue at some point, and the dev could see about updating WP as well. Then if everything goes to hell, the backups could be reloaded. Might be worth paying a few bucks.