When this plugin was first released, custom taxonomies were practically unheard of (WordPress 2.7). Custom fields were already there and convenient to use, so it was easier at the time to use custom fields as if they were tags.
Since WP 2.9, that is no longer the case: with a single line of code, you can get a separate set of tags that you can manage, assign to posts and group posts by, right away.
So, if you’re starting a new project, instead of using Custom Field Taxonomies, I recommend you use the following plugins to achieve the same functionality:
Instead of trying to emulate native taxonomies, this plugin will be transformed into a simple utility that converts custom fields to taxonomy terms.