The bags will still be intact with all of their slots/gear. The only difference is they will be no drop and the weight will be increased (medicine bags went to 10 pounds, assuming all the others did too).
You have the option to keep the bags as they were with the new no drop/weight characteristics. Only if you choose you can turn the bag in for the equivalent new version at any priest of discord.
Note: The old versions cannot be used for trade skill combines, only the new versions.
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