Tanner drops the items in the bag after placing the long sword in its sheath. Dropping an unsheathed weapon into a bag could be very dangerous with disastrous effects. The bag opens as each item is dropped allowing all the items to fit into the bag without any problems.

Bag:
Elven Chain Shirt
MW Steel Shield
Elven Longsword

Kerravin loots the gnoll archer and takes a few minutes to strip the gnoll of his fine armor and nicely made Strength bow.
Carrying:
MW Might Composite Longbow Str +2
MW St Leather

OOC:
So what is the decision Tyro? Lead on. ;)

Tyro - EB torch
Kerravin - Hooded lantern

Is this the only light sources?

Tanner - The way your description read you simply dropped each item you got off the gnoll barbarian into the bag. If you do that with the longsword w/o putting it into its sheath the bag may get cut and could explode. Id make a Fort save for the bag to see if it was cut. Ill assume that you did put the sword into the sheath but next time Ill simply obey your commands ... the exact way your write them so be careful with strange magic items and what you do inadvertantly. ;)