cannot use relative paths or ~-expansion when specifying tarball path

The unavailability of relative path is by design. There are too many issues if I allow relative paths.
However, the "~" sign is recognized and expanded into $HOME. Which command were you using?

Sorry, I just re-tested the '~' expansion and it worked, so perhaps I went crazy for a minute.

With regard to the relative paths, please reconsider or at least please consider improving the error message. It's highly unusual for a unix program to not accept relative paths, and combining this with an unhelpful error message means that on several occasions, I've spent a decent amount of time trying to figure out why it wasn't working when the problem was simply that I had forgotten about this strange quirk in the file handling.

By the way, I suspect that one reason the path handling is complicated is that you're overloading the meaning of the argument and using the leading '/' to indicate that it's a path. My suggestion for this is to simply break this functionality out into two or three seperate arguments (e.g. --from-tarball <x> | --from-installed <dir> etc). The overloaded parameter is kind of confusing and not very well explained in the documentation anyway, in my opinion.