I've never ran into this problem, but this might be due to a change in versions. I play FF Origins and they did fix some issues even in the "Original" mode you can unlock. As far as I know, you can't change rows in battle but then again, I've never tried. Toggle the command menu and see if you get a an option called "Row".
This is the only game mechanic in II that really frustrates me. No, there is no way to remove Key items from your inventory. You are going to have to manage and be careful with your inventory. Usually, I keep only ethers, phoenix downs, and elixers in my inventory for consumable items, and leave the rest for weapons and armor. Make sure to sell any weak armor and weapons to keep your inventory from becoming too full. Also be careful when enemies drop items.2.) Now I'm going to Dist cave, to fight "Chiemeras" boss, but even in this phase of game i have 12 or so "Key items" - Canoe, Iceslid, Ring, Pass (many of them are usseles) like ring and Pass for Warhsip, but they still occupy slots in my BAG and i can't trash them - so i have still less and less space for potions, found armor, and other items