Why not use tags for grouping photos? They're much more flexible.
The flexibility of tags makes sense, but this means that I then have to type in the same tag if I want to do multiple sparse collections of photos across folders. It's unintuitive compared to the picasa/iphoto workflow of dragging photos straight into an album.
Perhaps this could work if one could drag a group of photos to the sidebar containing the tag, but then that's bending the meaning of tagging.
Overall, I don't see why live photo gallery needs to break a workflow most folks are already familiar with (raw photos in folders/albums/tags). This organization is already used for flickr, picasa, iphoto (judging from screenshots), etc.
UPDATE: I'm not liking how Live Photo Gallery won't let you create "albums" (like picasa) instead of requiring you to create folders/copy photos instead. Is iPhoto this way too?