I had the same experience. I had my license stamped/validated for free at the DMV on Bade Road. One time a cop stopped me and told me that my license wasn't valid.
Me: Are you sure?
Him: Yes, it is not valid in Taiwan.
Me: Are you really, really, sure?
Him: It is against the law to drive in Taiwan with one of those things.
Me: Well then, what's this all about? (I show him the validation clearly stamped on the inside of it.)
He then took out his gun and pistol-whipped me for being a smartass. (Well, ok, he didn't.) But judging from the expression on his face, he was thinking about it.
After much muttering and back-pedalling he let me go.