This is a design decision. The manual even states, roughly: "The arenas are a metaphysical, spiritual place, and ther equipment within exists only on a spiritual level, allowing Demigods to utilize items and equipment more efficiently than any mortal could. Intelligent Demigods will realize and rake advantage of this."
Basically, don't think of it like a paper doll system. Think of it as: you have 5 slots, and this big pool to select any 5 from. I think it's a good thing, otherwise you promote gravity even more towards a specific few items.
