The encumbrance system has now been altered from what I understand its meant to be.
Encumbrance is meant to stop you picking up items when its maxed, but currently you can get more than what you can carry and move with it. The bar that represents encumbrance, does in fact continue past the 'max' area and goes outside the bar.
I asked another player to pick up the pack and try as well, it seems now he is having weird crashes when trying to move. Which started only when he had the pack on and stopped when removed.