It's tough to say what happened without knowing exactly what the page looked like before and after the change but I'd be asking myself the following questions:
1. How much did the text on my homepage change? How many words did I used to have on the page? How many words to I have now. Has the keyword density changed? Has the number of links gone up drastically.
2. Have my competitors received new links or changed their pages? This sounds less likely given the fact that you apparently dropped about 20 slots.
Can you simply link to your blog, remove the post excerpts and see if you move back up the SERPs? That would give you a pretty accurate idea if the blog is an issue.
I personally would not start each blog post with the same seo keywords. That may or may not seem fishy to Google but will certainly seem fishy to your blogs readers. I'd focus on writing legitimate content and trying to get links to it.
There's been some of discussion on these forums recently about WordPress tags. The general consensus seems to be stick to Categories and avoid Tags unless you can figure out how to SEO tag pages and how to avoid duplicate content issues with post and category pages. I personally don't think that Tags help or hurt that much with SEO. I'd use Tags and Categories if you can present them in such a way that your blog readers will find them useful. Otherwise avoid them.