There are too many blogs where I have seen tag cloud to the right bottom corner or below blog post. Some are flashy rotating tag clouds while others are more like plain text but with bigger fonts - tags which are used more frequently than others. In other words, I can say that Tag cloud is a list of links (as per search engine crawl spiders) presented in as Tags (for users). Tag cloud was common sometime back for most of the sites, but not too many sites give importance to this these days. Having too many tags, well it might sometimes create a big mess and will be hard to manage for users as well as blog owners.
Having tag clouds in blogs will make the page rank juice flow from one page to another page internally within your website or blog. As you don't use any kind of rel='nofollow' kind of code here, you are not blocking the page rank juice from flowing to another page of yours and it's perfectly fine as it's within your blog.
Also check: How to have the right keyword density per post
Having a tag cloud in blogs is nice provided there are less number of tags and not too many. Having too many tags will only create too many links, and with Google's latest algorithm updates like Panda, Hummingbird algorithms it might even consider it as keyword stuffing, which Google considers it very seriously. Those websites which are caught doing so will be penalized by Google and the page rank and traffic will also comedown drastically. The reason why Google might consider having too many tags as keyword stuffing is because these tags or keywords are completely arbitrary words jumbled together in one place. Having flashy rotating tag cloud in blogs might look good, but the automated code of Google algorithms will have a tough time in understanding these. Remember that it's not possible for automation code to identify objects when flash content is used. So, page rank might not flow as expected.
Remember that tag cloud is a list of links and it's better to keep less number of tags. You can see in my site that I have got categories instead of tag cloud. Also note that each of these links will allow page rank to flow to a different page pointed to by the tag. It's better for blog owners to point to a particular page or post in their blog instead of all the tags as the page rank will flow accordingly. It's not that you should use tag clouds in blogs, you can use but see that the tags are less in number so that it will not hinder SEO.
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