Is working on feature like inventory system or a health system considered prep work or should those features be only worked on during the Jam Week?

Those seem reasonable to me (though I've yet to add an inventory system to my engine ^_^).  They're the kinds of generic features you'd get for free if one was using RPGMaker, RPG in a Box, FRUA/BTCS or similar, so seem reasonable to have prepared (or re-use from another project during the jam).