Highman! I go to TJ all of the time. At least 8-10 times a year and I'm actually going this weekend July 14. And every time I buy cigars down there so if anyone knows where to buy them, I would! I ALWAYS go to Rudy's La Villa Del Tabaco. It is at 868 Revolution (which is right in the middle of the tourist area). Tell the cab driver it is next to Dominos pizza on Revolution. It is a little more expensive here than at the liquor and drug stores but I can vouch for Rudy: he stakes his reputation on his cigars. You really, really have to watch buying them at the tourist shops or drug stores because there are millions of counterfeits rolling around.
As for duty free: As far as I know, Tijuana is a duty free zone. Any liquor store you go to will be duty free. Some liquor is quite a bit cheaper (like some tequilas) but some are not. You can see the prices when you are down there. If you are looking for cheap Patron, you won't find it because it is an American brand and not a Mexican brand name -- though because it is so American I think I have seen it in some of the clubs recently. The company that makes the tequila that becomes Patron just makes Tequila. Companies buy their Tequila and they can brand it however they want.
Let me know when you are going down there and I might see you there! I love the place!