Hoarding's always a problem for me in RPGs. I'm in Mac Mordain Cadall, and am overencumbered for the first time.

Here's my manifest, not counting equipped stuff. "x" for consumables indicates number of slots used, not number of uses.
7x Standard armor
5x Broadsword
3x Spy note (do these have any use once read?)
3x Rations
2x Quarrels
2x Restoratives
Aventurine
Flaming quarrels
Herbal pack
Shell
Picklocks
Lamprey (should Gorath be using this instead of a broadsword?)
Torch
Armorer's hammer
Shovel
Whetstone
Weedwalkers

you prolly dont need all that armor and odds are they weigh the most
and extra swords arent too usefull once you can repair them when they need it
though if you can try and sell them off every little bit helps :)

as for lamprey i always had gorath using it

and for the spy notes i always kept them until whatever they were about was dealt with just on teh off chance you needed to "give" them to someone but that could just be my OCD taking

You can safely store excess equipment in chests with regular locks or word locks.

You'll want to keep the whetstones and hammers and repair equipment after each battle. Aventurine repairs your crossbows. The shells and gems are only to sell although you might hold onto 2 emeralds for a certain individual in an inn. The notes have no use once read. you may want to keep backup armors with highest %s and weapons and sell the rest. Be sure to get rid of or not even take spoiled or poisoned rations.

It depends on whether you're going to use the "Stack Trick". If using the stack trick, those Flaming Quarrels can be used to get unlimited money at the LaMut shop.
If you aren't going to use the stack trick, then you need to decide what method you're going to use in order to get the money needed for the best armor, weapons, and spells.
Easiest method is to go to the Dimwood NW, get the spell "Grief of a 1000 Nights", then go to the Dimwood South and get the 8% Goblin Sticker in the stump. No combats are necessary in the Dimwood, so don't worry about that. Now return to the Yabon shop, sell the Goblin Sticker and buy it back for $23.40. Repair it and sell it to the shop for a large profit.
You won't make as much as you would fixing broken Elf crossbows with a new bowstring ($17.60), but you can easily make the money necessary to buy an Elf crossbow at LaMut ($638). Then you can break it, sell it, buy it, fix it, and sell it back to LaMut for the big bucks. There are other methods of making money.
What you carry, sell, or dump, will depend on your money situation first, and whether you plan to do all the quests.
I'll give you one tip for sure: don't waste your time picking up shells.