I used amarok for a new years party, going through and tagging all the party songs with the label "party" so I could use a dynamic playlist to handle DJing. I thought these tags were being saved in the ID3 tags for the mp3s. Is that not the case? The computer I was running it on died, and I had to rebuild a system (and thus rebuild the music database). Now all my tags are gone!

Is there any mechanism for getting the same functionality while still keeping all vital data in the individual music files rather than in a database? I like having the database for fast access, but it's nice to have a database that can be built just by reading the information in the files. Thoughts?

No, labels are purely stored in the database, and there are no plans for changing this. After all there is no standard tag in all file formats for this.

BTW, this kind of tagging is a general trend in software; The new KDE4 allows something similar via the "Strigi" technology for arbitrary files. Amarok 2 might interoperate with KDE's Strigi database at some point.