[ElanoraBryght]

Before making potions, I cleared as many slots in bags as possible to have room for ingredients.
The last 2 things I cleared were excess Water Flasks / Rations.
I drank my 3 extra Water Flasks.
I ate 3 of my extra Rations.
Purchased Oakmoss and Heliotrope.
Sold my 4th extra Ration.
Purchased a Medicine Bag.
Successfully combined two Potion of the Frost.
On the next attempt to make a potion, received "You cannot combine..." message.
Tried moving items out and back in, then camped and logged back in.
When I logged back in, there was a Water Flask in my top inventory slot in my first bag (the Medicine Bag).

I doubt the 1s for selling the reappearing Water Flask is massively exploitable, but there's something funky going on with inventory.