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I have only found two shops in IWD that sell weapons. The one in Kuldahar and he has nothing and the one hte severed hand and I have bought him out. I am in Dorn's deep and need to buy things. Is there any hope?

You'll find much better stuff than you'll ever buy.

Spend money on scrolls and magical items. Many items disappear from a certain merchant after the chapters change (and new stuff shows up as well).

There are more shops you can find during the game. But you really don't need to buy things, you'll find enough.

Conlan (in Kuldahar) does have a few decent items that are worth buying. Trollslayer and the Sword of Myrlock Vale are two good ones he has. Trollslayer is as its name suggests, a mighty troll killing weapon. The SoMV isn't as necessary, it grants a +20 bonus to lore which saves on ID spells and it's +4.

Another item he has that I like is the Spear of White Ash (really the only decent spear until you get to the Wyrm's Tooth). All the other weapons he has are fairly ordinary +3 or better weapons.

There is another shopkeeper deep in Lower Dorn's Deep with some very nice equipment. Otherwise, the majority of your weapons will be obtained through looting.

The problem I have is running out of arrows and bolts. Conlin only sells the basic ones. I pick up what I can but I am running out of space. Is there a bag of holding anywhere?

In TotLM.

There's a tweakpack (or is it the fixpack?) which allows unlimited ammo stacks. I always use that!

I usually don't use magical ammo at all in IWD, so don't bother if you can't buy more.
If you run out of inventory space you can use containers (like barrels or treasure chests) for storing equipment.

Follow Klorox' advice and get the tweak pack.

tweak pack

How do I get that?

Here you go:

G3: Icewind Dale Tweak Pack