An explanation about Diablo 3 Inventory & Bags:
 
Blizzard has said they plan on implementing upradable bags in Diablo 3. Meaning that one can find, buy or trade for bags that increase the max number of tems they can carry.

Personally think that a scalable inventory that progresses with level would be a better idea. Meaning that at lvl 1 you have a limited number of slots and as you gain levels you gain slots as well (so maybe every 10 or so level you gain a couple slots untill level 100 when you would have a max inventory)

In many RPGs buying bags is simply something you do because you have to if you want a decent sized inventory. In the end-game everyone ends up with the same sized inventory anyway because everyone has traded for or bought max level bags. This also means that once the majority of the community has an established char they simply buy bags for their alternate chars so that their lower level alts always have the largest bags they can use for thier level.

Personally, I don’t look forward to buying bags in an ARPG. I want the items I’m trading for to boost stats and make my character god-like not help them hold stuff.

 
Bashiok replies to Diablo 3 bags system:
 
Just a few things off the top of my head regarding upgradable bags.

Upgrading storage size is a great reward, and can be much better than any incremental weapon/armor upgrade. (Kills/min could easily calculate out to be much greater without having to stop to clear inventory as much with a bag upgrade as compared to a damage increase from a weapon upgrade.)

Building off the last point, it helps add the sense of your character becoming more powerful and gaining more from the time spent playing.

Increasing the storage size over time/play experience is a great way to scale the player’s sense of the game’s complexity.

Beginning with a small and limited amount of space teaches the player early on that inventory management is an important part of playing the game – and sometimes generating income.

Making and keeping the player aware of their limitations can also help keep a better sense of structure and focus. Being overwhelmed is sometimes as detrimental to a play experience as being bored.

Also keep in mind that while we’re obviously dropping bag upgrades off of monsters now, we could choose any number of alternative ways to get them to the player. Or maybe a combination of different ways. Whatever, I just wouldn’t focus on the ‘how’ of them being delivered right now.