Is there any way the Bitcoin network could resist a viral tainted-coin tagging system implemented by regulators? Already it's possible for MtGox etc. to detect spends of coins that have certain well-known thefts in their history. If regulators forced audits on exchanges and key popular merchants, as well as keeping track of coins they deemed to have been involved in illegal activities, they could make these exchanges and merchants pay a small tax on these 'tainted' transactions and pass this cost on to the consumer.  As the regulators 'tainted' coin list would be public, it would become in more and more peoples interest to use wallet software which subscribes to the 'taint' list in order to reject coins they know will incur a penalty upon spending. The more the regulator raises the tax at the exchanges and audited merchants, the more people must join.

Audited exchanges and merchants would have to submit batches of all bitcoin addresses involved in their transactions to the regulator. Agents could perform random transactions with exchanges and merchants to make sure 100% of transaction IDs are reported.

Is this scenario realistic, and wouldn't this make Bitcoin ultimately a very controlled environment indeed?

('tainted' coins would still have value on black markets, creating a split system where bitcoins are no longer completely fungible)
I don't think the scenario is realistic because it would only punish innocent people. By the time coins could be marked as tainted, they would already be in the hands of innocent people. Governments don't do similar things with other currencies. For example, if you deposit dollar bills in a bank that turn out to have been stolen, the government could charge the bank a "fee" to clean the bills which the bank could pass on to you. But governments don't do that because they recognize that by the time the bills could get on a "hot list", they're already in the hands of innocent people.

There are also specific features of Bitcoin that make this difficult. Transactions put all the input Bitcoins into a big pile which they dole out as outputs. There's no concept of particular output Bitcoins corresponding to particular inputs. Bitcoins don't have a serial number that can be traced through the block chain. So any such tracking rules would be basically arbitrary.

It's just not something realistic. It's more realistic with physical currencies which have serial numbers and are widely used to facilitate crimes and buy contraband. And governments don't do it with physical currencies -- largely because they know it would only punish the innocent.