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Yes, of course it's free. I just put the GPL reference in the header which I also found in another extension.
For the javascript part I use two additional small libraries (see the subfolders inside the js folder), both are also free to use, one with MIT license, the other one without specific license. Licenses are inside the folders.

The javascript code needs the extension pun_jquery to be running - but it's in the manifest file, so I guess you have it installed.

Did you type anything after @? Just @ shows nothing, you need at least one more character, like @r

Do you get any javascript error?

Just in case you already tried / downloaded: I just put another version online which allows the use of arrow keys and enter to select a user from the search result list. Before you had to click on it.

Furthermore it might be good to know that when you quote a post, all notify tags are removed to prevent users being accidentally notified again.

I have kind of that feature as a plugin, although maybe not 100% what you're looking for:

Plugin-Download

The plugin won't set every @... as notification (because sometimes people might not want to notify somebody), but add the new bb tag [notify]username[/notify].
In the textarea for writing a new message, you can just type @user and you'll get a little popup recommending users starting with user* (those always come first) or containing *user*. Only the first 5 matches are shown to reduce loading time (obviously the database connection still shouldn't be too slow). If you click on one of the results, the "@user" will be replaced by [notify]username[/notify].
The feature only runs when the @ is at the beginning of the post or after some whitespace / line feed, so e-mail addresses won't be tagged.

The usernames offered for completion are only those users who have access to the current forum - just be aware that the php script which performs the search can be called separately by anybody, so people could test which users have access to which forums.
Guests never get any search results for safety reasons, so only logged in users get a result list.

In admin options (Settings -> Features) you can choose what kind of notification you'd like to have: Sending an e-mail to the user and/or showing a list of notifications on top of the forum.
Notifications are removed when the user opens the page of the thread containing the post. If you're tagged on page 3 of a post but open page 2, the notification will be kept active.

I also ran into the problem on mobile devices and changed the css style Oxygen of the extension adding this:

.pun_pm_list .td4 {
    width:100%;
    min-width:10em;
}

.pun_pm_list td.td3  a {
    overflow:hidden;
}

@media screen and (max-width: 600px) {
    .pun_pm_list .td5 {
        display:none;
    }
    .pun_pm_list .td3 {
        width:8em;
    }
    .pun_pm_msg .td1 {
        width:auto;
    }
}

@media screen and (max-width: 460px) {
    .pun_pm_list .td3 {
        width:4em;
    }
}

Im not sure whether the first part - width for td4 - is really necessary, but it helped me whenever the other rules messed up, giving it at least some minimal width.
On smaller screens the column "Last edited" will be hidden and the "From" column gets narrower, giving the subject enough space.
The change for .pun_pm_msg .td1 on small screen is for the header (From / Sent / Subject) when reading a message, in the original style it would be too far on the right.

Another issue is that the collapsed menu on small screen gets the title "Profile Menu" although it's the "PM Menu" - however, at first sight it looks like a change for that might need some changes in the forum software itself. As it's not very important for me, I didn't look into it any further.

Same for me with German language.

Got the problem with debugging:
Subject an message are "cleaned" with forum_trim (misc.php, line 210-211) which calls utf8_trim in /include/utf8/trim.php.
There, utf8_ltrim and utf8_rtrim use pattern modifier 'u' which treats pattern string as UTF-8.
In German this does not work (because of our great 'umlauts' ). Should be the same with French accents.
As hotfix, just remove the 'u' modifier at both occurences:

replace

return preg_replace('/^['.$charlist.']+/u','',$str);

with

return preg_replace('/^['.$charlist.']+/','',$str);

and replace

return preg_replace('/['.$charlist.']+$/u','',$str);

with

return preg_replace('/['.$charlist.']+$/','',$str);

in /include/utf8/trim.php.

Note: It's just a quick hotfix for this special problem, I don't now if it could cause (security) problems somewhere else.

Btw, utf8 causes more similar problems. For example, after database update from 1.2.x to 1.3, all users with non-utf8-passwords (as mentioned umlauts, accents etc.) could not log in anymore (bad thing in combination with empty password mails ).