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Had the same problem as above.
Tried everything, erasing all cfg files, turning off steam sync, anything, and everything.
The only thing that worked was starting a new group WITHOUT any avatar chosen.
For whatever reason, all the groups I started, would not let a tag be selected if an avatar was unloaded. Also steam does not allow group avatars to be erased once uploaded, only replaced with another avatar.
In short, don't select any avatar for your groups, and if you have already, start an almost identical group, with no avatar.
Problem solved.