Hmm, just btw, has anyone ever considered that you actually have to fit into a bag of holding - like, you have to be able to be inserted into said bag through its opening ? I can see that for some small characters or a very large bag, but for a normal human knight in full armour and with his equipment strapped on, no way. What normal bag has an opening large enough to fit around a grown human - that is more than app 2' circular diameter ? Make that 3' diameter for knights, burly dwarves or half-orcs , all of which tend to be brawny and therefore stockier. Even large agrocultural sacks (not really bags anyhow, but close) would be challenged with such a bulky "object"....
Besides basically everyone being stored on top of each other and things getting rather "tight" inside - which might cause some roleplaing fun, but should generally be a detracting factor.
Regarding the air supply - we always ruled that stuff inside a bag of holding was removed from this dimension and stored in stasis in extra-dimensional space. Which had its own characteristics - like being essentially timeless, which put characters into "suspended animation", and incidentally causes them to suffer from a spell of sickness and hangover after leaving the bag - which includes re-memorising spells, resting for new spells, getting over the nausea... etc.
This way, objects get stored there (and even stay fresh ), but noone with his senses intact would contemplate being "stored" in there unless the alternative was dire and really unpleasant.