<?php
  $current_cat = get_query_var('cat');
  $tag_slugs = array();
  global $query_string;
  query_posts( $query_string);

  // first loop to get all post tag (area) slugs
  while ( have_posts() ) {
    the_post();
    $tags = get_the_tags();
    if($tags) {
      foreach ($tags as $tag) {
      $tag_slugs[] = $tag->slug;
      }
    }
  }
  // remove duplicate tag slugs and sort them alphabetically
  $tag_slugs = array_unique($tag_slugs);
  sort($tag_slugs);
?>

<?php
  // if there are tags show the form
  if(!empty($tag_slugs)) :
?>
    <form method="get" id="tag_order">
      <select name="select_tag">
      <option value="alltags" <?php selected( $_GET['area'],'alltags', 1 ); ?> onClick='window.location = "<?php echo get_category_link( $current_cat ); ?>"' >All Areas</option>
<?
  foreach ( $tag_slugs as $tag_slug  ) {

    $the_tag = get_term_by( 'slug', $tag_slug, 'post_tag' );

    echo '<option value="'.$the_tag->slug.'"'.selected($_GET['area'],$the_tag->slug, 1 );
    echo ' onClick=\'window.location = "'.get_category_link( $current_cat ).'?area='.$the_tag->slug.'"; return false;\'>'.$the_tag->name.'</option>';
  }
?>
</select>
</form>
<?php endif; ?>
<?php
// very important to reset the query
wp_reset_query(); ?>
<?php
if(isset($_GET['area']) && $_GET['area']) {
// an areay was selected
global $query_string;
query_posts( $query_string.'&tag='.$_GET['area']);
}
?>

<!-- second loop -->
<?php if ( have_posts() ) : ?>
<?php while (have_posts()) : the_post(); ?>

<!-- rest of your loop -->