As the game progresses the inventory size increases, and you can also expand the inventory with the expansion slots you get from playing the game.
We definitely need to balance the game more, but we need more data from playtests and more feedback from players to really nail it properly, the enemies you melted were other players, so either your build was exceptional, theirs horrible, or a combination of both :D.
We love the idea of melee weapons, and will experiment with this for the early access build most likely.
Again, thank you for the feedback, it really helps us make the game better, we really appreciate it.