Nope. We actually do need more bag space. Trying to go through 1000 items after spending 10mins clearing a stacked tower in 350 zone is no fun when you only have 1 bag slot spare.
I run around with 2 different resist sets, a run speed set, a high stat set, a few different wands and a group of resources i use to repair. I play on a busy pvp server so i avoid using chests and like keeping hold of the good items so i can give to noobs or trade for repair resources.
Sure, less junk could drop. That would be a removal of fun from the game though. Digging through lots of items to try and find the good ones is fine.