It's called r because when Schwarzschild wrote the metric, he used spherical coordinates to cover space. But coordinates merely assign numbers to points, and don't talk about distances between them. For instance, I can use polar coordinates on a cone, but circles won't have circumference 2pi r. That's the job of the metric.
The point is that far away from the mass, spherical coordinates "act like" ordinary spherical coordinates, because the metric is very closely equal to the Minkowski metric. But as you approach the mass, curvature becomes significant and Schwarzschild coordinates behave funny.
You are correct that the length of tape is well defined. The problem is that r is not the length of tape, so it needn't be well defined. The reason distance blows up as r approaches the horizon actually has to do with time. The "time" as viewed by a stationary observer at infinity, which is probably what you think of as time, cannot be extended to the other side of the horizon. In fact, that coordinate becomes spacelike inside. So when you take your measuring tape from outside and cross the horizon, you are traveling an infinite distance in time to get there. This sounds a bit mumbo jumbo but that's because it is difficult to understand in this coordinate system.
There are better coordinate systems to use. For instance, Eddington-Finkelstein or Kruskal coordinates or Panleve-Gulstrand coordinates. Most of these are based on the notion of "infalling observers", which have well-defined behaviour crossing the horizon.