There is an ongoing bug with chaos dungeon loot. When your inventory is full it stops dropping loot. It does not use the pet storage, loot simply does not drop. I have a hoarding problem and see this daily. I did a test today on 6 of my characters. I made sure that I had only 1.5 rows of space available in my main inventory, with pet storage empty. Sure enough, loot stopped dropping after my inventory was full. My pet storage remained empty.