[silvarilon]

We use something between the two.

We've got a weight-based inventory, anything worn or carried is shown if you look at them. "Bob is a large dude. He is wearing a top hat. He is carrying a walking stick and dog collar." (Obviously, in-game descriptions are longer, since players tend to wear full sets of clothes...)

They still have containers, pouches, backpacks, sacks, drawers etc. which they can put items into. Those containers don't reduce the weight, though - but players still use them both for organization, and also to not look like they're carrying a cartload of items.

We have the concept of "slots" but only for worn clothing. A helmet and a hat would use the same "slot" - you can wear both, but one would cover the other. (So I could wear a helmet to protect my head, and put a wizard hat over it, so it's not obvious when someone looks at me that I'm wearing a helmet...) - code that gives benefits usually checks that a slot is empty, so you can't wear two metal helmets to get double protection.

Our characters are also inhumanly strong, since I've given them a huge weight that they can carry to avoid the annoyance of "I'm going to need to make three trips to deliver this money to the bank" when someone is heavy. Ideally I want to create special items like wheelbarrows that would let them move around heavy items, and set their carrying capacity to something more sensible. (But right now the only way to be able to move things like marble statues if you're a crafter is to let the characters pick them up and carry them)

In most cases, I find players don't want to be limited by weight, they want to carry anything they want for their roleplay, and when they're done, they'll self-clean out their inventory (they have rooms with wardrobes and other storage) - but our game is social, there isn't really anything to loot, so there's not a need to stop them carrying around a lot.