ui-select encapsulated in a directive - ui-select

Question

I am trying to abstract few things specific to my project into a directive built on top of ui-select. I am running into a basic issue where the ui-select directive doesn't respond to any scope changes from with in my directive.
Weird part is watching for the same variables in my directive shows that values indeed are changing.
Here is the most stripped down plunker: http://plnkr.co/edit/8J3aMK1YMIIsJC3oa56U
Appreciate any help.
'use strict';
var app = angular.module('demo', ['ngSanitize', 'ui.select']);
app.controller('DemoCtrl', function($scope, $http, $timeout) {
$scope.multipleDemo = {};
$scope.disabled = undefined;
$scope.enable = function() {
$scope.disabled = false;
};
$scope.disable = function() {
$scope.disabled = true;
};
});
app.directive('tagEditor', [function() {
return {
restrict: 'A',
//replace: true,
templateUrl: 'tagEditor.html',
scope: {
isDisabled: '#',
tags: '='
},
link: function(scope, elem, attrs) {
scope.$watch('isDisabled', function(newVal, oldVal) {
console.log('isDisabled watch fired with values ' + newVal + ',' + oldVal);
console.log('isDisabled value is ' + scope.isDisabled + ' and type is ' + typeof scope.isDisabled);
});
scope.$watch('tags', function(newVal, oldVal) {
console.log('tags watch fired with values ' + newVal + oldVal);
});
}
};
}]);