Confirmed.
In J3 we have

@wilsonge

Setting as release blocker

Are the tags shown if you enter 3 letters
#30385 (comment) ?

yes, only the tags which fit, very different from J3

Expected behavior as already explained in #30385 and in many other issues.

Expected behaviour regarding how these "fancy selects" work, i.e. it is not a bug what has been observed here.

But that doesn't mean there is no issue. You have to look up the names of tags somewhere else to know which 3 characters could be suitable. Or can you type ANY 3 characters, matching or not, to see the available tags? I think no. It's a functional downgrade compare to "normal "multiselects, and it's bad UX, too.

This is SOOO user-unfriendly!

Apart from it being ridiculous to have to search for tags to show them (which is not implied anywhere), there are bugs to this approach.
Tags with 1 or 2 letters: can't look them up.
In the tag assignment field (article edit): type 2 letters and save will use the existing tag if it already exists. But no feedback anywhere if it does or not.
There in NO way to assign a 1-letter tag to an article. But it is possible to create 1 letter tags in the Tag manager.

No matter if as a developer you expect it or not - this is not correct.

Well, the "no results match" is definitely wrong.

"Dear mister Web Dev, for our Citroën car parts site we try to create tags, like C1 and C3 and DS 7. After losing a day thinking it was our fault we finally found a way to select the "DS 7" tag by writing it in full in the tag select field. But the C1 and C3 tags never appear".

"Oh, you can create them. You just can't search or select them. That is how it is meant to be. Tags need at least 3 characters."

"I thought you said Joomla is a mature web platform."

"Well, I recommend we build your site on Joomla 3, as it was no issue there."

"What about you just go away and we let someone else build it on Wordpress!"

(Ok, I'll crawl back into my own coding space and shut up 😁 )

They have to rename their cars to something longer ;-)

This is SOOO user-unfriendly!

Apart from it being ridiculous to have to search for tags to show them (which is not implied anywhere), there are bugs to this approach.
Tags with 1 or 2 letters: can't look them up.
In the tag assignment field (article edit): type 2 letters and save will use the existing tag if it already exists. But no feedback anywhere if it does or not.
There in NO way to assign a 1-letter tag to an article. But it is possible to create 1 letter tags in the Tag manager.

You can change this with Minimum Search Length option in Tags component configuration.

I still consider this as a release blocker.
Do we really need this fancy selects for tags?

In fact, there is a solution: Instead of chosing AJAX, one can choose Nested in Tags configuration...

Maybe Nested should be default.

This problem applies everywhere that this select script is used. not just for tags

Everywhere?
What about Category field?

Or Select Author filter?

Created a solution that hopefully fits all needs at #31481

Closing this.