I know in another game one of the reasons developers gave to limiting inventory space was to keep databases under control. Plus that game was coded where your quest items were in your general inventory, and locations would scan your bags to see if X item was present to fire off events, etc.

Of course, after saying this, they released larger bags for RL cash and then a massive 88 slot bag for the super expensive preorder of their expansion.

I think having a limited amount of inventory room adds a depth to player choices - to keep people from being ehoarders. If you want to make a sword, you may not have every ingot possible all the time... Or the ores, failing that. So there is a need to play to get that item - from other players or from the world itself. Keep the cogs of the economy grinding.

Could be way off though.