Are breadcrumbs not working properly?
Seems like your breadcrumb is working properly but you get the real path instead of the path alias. You can use drupal_get_path_alias.

$breadcrumb[] = l($title, drupal_get_path_alias('taxonomy/term/'. arg(2)));


Seems like you are setting title and breadcrumb in a .tpl file? Try to avoid that and put your logic in template.php.
Quick tip: views_embed_view can cause performance issues.