It's good to keep the limitations of tabs in mind. The're really useful, but they don't represent music nearly half as much as conventional music notation. They represent finger movements instead.
The funny thing is that standard notation is quite poor for the guitar because it has no notion of finger movements- all sorts of annotations are dumped into scores - numbers for fingers, circled numbers for strings, roman numerals for frets, empty noteheads for natural harmonics, and who knows what for artificial harmonics and friends.
I don't think its possible to reproduce a piece from only tabs (without having heard it) while standard notation makes sight reading unnecessarily hard.
I feel like I'm repeating myself too much in this thread, haha, but only because it seems like no one is acknowledging that you can combine both forms very easily and produce very clear results. You just replace the staff notation with tabs, but keep everything else.
I took a quick screenshot to show an example[1]. I think here you can tell very easily what fingerings to play, what the note duration is, and when you should sustain notes over others. The difference between slurs, slides and whammy bar bends (The V symbol you see next to notes like in meas 3), muting notes is an x, yadda, yadda. I'll stop going on about tabs now.
If you just want to know where you put your fingers to make the same sound as some other guitar made in a recording, tabs are fairly reasonable. If you want to know what's going on musically, staff notation is much better. Also, if you want to be able to play melodies from fake sheets, or arrange music originally written for another instrument, you'll need to know staff notation.
I know countless guitarists, myself included, for which sight reading is not hard at all, because we've practiced this for hundreds of hours or more. All the things you described as making this difficult simply become second nature with practice.
Standard notation can help build a mental representation of how the music sounds. With some training, one can process the standardised fingering annotations into physical movement really fast too.
Tabs are physical movement instructions. With a lot of training, some people can process this into a limited mental representation of how the music sounds.
If you think about it, it's quite analog to the difference between vector and bitmap images.
Tabs don't have to be just hand-scrawled notes or ASCII text anymore. With decent notation software, you can mix the notations. I don't think there's much that can be written in conventional music notation that can't be displayed in Guitar Pro (or Tux Guitar for an OSS alternative). Especially since it allows you to toggle between the two forms, or view them on top of each other.[1] You can also add rhythm and articulation notation to just tabs to make it more clear what they mean as well.[2]
I think it's a great way to begin learning guitar without needing to take a lot of time to learn how to read sheet music first, as that really scares away a lot of new players, or people who are considering learning guitar. Notation for rhythm, slurs, accents, are all pretty clear and can be learned very easily. Unless there's more that I'm not understanding about the differences between the two, I'd like to learn what it is.
There's one last benefit that really makes me prefer digital tabs over conventional notation. There are a lot of songs/riffs/etc that are very dependent on the effects being used. This is more a benefit of software than tabs, because you could do this with any instrument or notation, but support for it is more common in guitar software. Being able to add effects, and mark things such as the rhythm of a wah-pedal can be very helpful as well. An example I can remember is Searching by Joe Satriani. He rocks a whammy pedal back and forth while playing an arpeggio, and I had no idea how to mimic that sound until I saw both the notes written out, and the whammy bends on the same track as well.
Granted, I'm a bassist, and I appreciate that guitar is its own beast. Bassists also debate the merits of tabs versus notation. I used to be adamant that everybody should learn to read, but have softened my views, especially in light of what you say, that reading tends to discourage beginners.
Instead, my more moderate view is that at the very least, new players should be informed of what the most common notation systems are like, and what they are used for. We can argue all day, but it's often someone else who decides how they want to notate something. Different genres have their own preferences, and there are even regional variations. I played with a bandleader who had moved up from the South, and had to re-write her book because nobody in this region can read Nashville number charts.
I play in a jazz band, and the guitarist and I would both be helpless if we couldn't read standard notation -- dots and chord symbols. But I would add that it's a musical genre where the music is pretty forgiving of the player deciding their own fingerings on the fly.
You can always switch to notation mode and work out the fingering for yourself, just like you normally would. The programs can also allow you to move notes between strings, and it will shift the tab so the note played is the same, even in alternate tunings, so you can quickly try different positions on the neck. I also know Guitar Pro has a feature where you can enter notation or tabs and it will attempt to work out the best fingering for you. I don't know how well this feature works, though.
If something is tabbed inefficiently, that's a problem with the author of the tabs, not the format. I'd say incorrect tablature is similar to incorrect notation. Just because someone can notate music incorrectly doesn't mean that sheet music is a poor format.
The fact that tabs imply a certain fingering is a larger benefit than an issue. Many riffs are only realistically playable with one specific fingering, and a tab can help you figure this out much more quickly than you could with your ear or notation alone. Especially when it comes to deciphering whether something is using techniques that can produce the same notes, but different sounds or ease of playing. Like sweeping as opposed to tapping, or songs written in alternate tunings.
Not to mention that the SOUND matters too, depending on the fingering. E.g. A high D played on the (plain) 2nd string sounds different than the same pitch played on the wound 3rd string which sounds different than the wound 4th string played up above the 12th fret, etc.
Circle of fifths and scales are very relevant for guitar though, even if using tablature. And it would be very useful to learn basic treble clef reading to better understand chords and scales.
Not to say don't read them of course; you can read what you like, just that tab is what you'll be using I would have thought.