even under the current transliteration/transcription system, we don't spell Tao the way it sounds. Any ideas?

There are / have been two main ways of rendering Mandarin Chinese pronunciation into English. Neither is strictly phonetic - it is a bit two-faced of any English speaker to complain about this, considering how non-fonetik Inglish iz...
Whilst neither system of rendering Chinese is phonetic, each is internally consistent. This alone is easier than English - however mao and tao are pronounced, at least they rhyme, whereas cough and through don't. Enough...

In both Wade-Giles (older rendering) and pinyin (more recent, introduced by the PRC post 1949, not sure exactly when) 'ao' is a compound vowel pronounced more or less like the vowel in the English 'how'.

The t/d thing is not at all like l/r in Japanese. (Sorry, Fiberbabe!) In fact, it's the opposite.
With l/r, the Japanese cannot distinguish between two sounds in English - they only hear one.
With t/d (and also p/b, k/g), Chinese (OK, non-Mandarin Chinese, but the scholars who set up Wade-Giles had to accommodate them too) distinguished more sounds than the average English speaker or English orthography. This is where I start to struggle, but it's all to do with whether a consonant is hard or soft and whether it is voiced or unvoiced.
For a (sort of, but totally non-scientifically based!) example, consider the number of British people who think Americans pronounce t as d. If we add it all up, we get three sounds:
British t
British d, American t
American d

The top one is not used in Mandarin, although I understand it is in other Chinese dialects.

Wade-Giles, probably set up by the Brits and at a time when Mandarin was not so universal, used t, d, d' for these three sounds.

Pinyin was set up later, at a time when American was more accepted as an accent. More significantly, it was set up by the Communists who had also decided to promote Mandarin above other Chinese dialects so that all Chinese would be able to talk to each other. They therefore had no use for a sound not in Mandarin. So they just used t and d for the last two sounds.

So pinyin is less able to represent as many separate sounds, but much closer to 'normal' English pronunciation.

...I promise I will not try to explain this ever again on this board!

The short arnsa too wye we dohnt spel 'Tao' the way it sowndz iz that it iz ohnly wun ov menny wurds we dohn't spell how thay sownd.
( I couldn't even work out how to spell half those words phonetically using the poxy 26 characters we have to represent the sounds of English! )