Imagine a tumbler, where fractions of bitcoins are taken in (say 100 bitcoin split into 1000 pieces each) then from 1000 people (including you and you're "illicit" 100 bitcoin) and then you get back 100000 pieces, passed on to another tumbler until eventually you get back 100000 randomized pieces = 100 bitcoin. Where did all those pieces come from and why? How do you connect that in the blockchain ledger to prove the income is illicit?

Is bitcoin tumbling feasible anymore?

First problem: transaction fees are currently over $10 per transaction.

Second problem: max transactions per block (2k?). Wouldn’t a single tumbling instance of 100k pieces completely fill 50 bitcoin blocks, effectively browning out the system?

What happens if the tumbler "loses" your bitcoins?

Same thing that happens when a bookie "loses" your bet. Probably nothing. There are illicit activities which use systems of trust based on past behavior just like in the "legal" world and there are usually consequences.

Coinbase, shockingly, violated trust on both sides and is still being hyped. Doesn't take much to understand what a terrible investment that is.