I think the first thing you need to do is more clearly define the purpose of your tagging system. Do you want to simply build tags based on the words that occur most frequently within the text? This strikes me as something designed with search rankings in mind.
...Or do you want your content to be better organized, and the tag cloud be a way of providing a better user experience and creating more distinct relationships between pieces of content (ie both of these are tagged sci-fi, so display them in the sci-fi category).
If the former is the case, you might not need to do anything but:
Then you just need to decide how many times a word has to occur (either percentage or numeric), and store those tags in a table that shows the connection between tags and content.
To implement the "as the user is typing" part you just need to use a bit of jQuery's ajax functionality to continually call your script that builds the tag list (ie on keydown).
The other option (better user experience) will incorporate a lot of the same elements, but you'll have to think about a bit more. Some things I would consider:
- Do you want to restrict to certain tags (perhaps you don't want to allow just anyone to create new tags)?
- How you will deal with synonyms
- If you will support multiple languages
- If you want a preference towards suggesting existing tags (which might be close) over suggesting new ones
Once you've fully defined the logic and user experience you can come back to the search algorithm. MATCH and AGAINST are good options but you may find that a simple LIKE will do it for you.
Good luck = )