Dont forget, you get XP from a Poke Stop even if your bag is full ...
True, although it's still better to dump bad items for good ones. If I dump 100 red balls, only 50% of the new items I'll pick up will be red balls. I keep doing this until I have all potions, special balls, berries, and eggs.
I *never* dump potions (and I have *no* idea why so many guides recommend you do), but I will use them as I collect them until all the pokemons I care about are healed. Ultimately I aim to end my rides with full HP pokemon, ~700 balls, and ~200 potions.