Firstly, auto-sort DOES NOT MERGE STACKS. And that's an issue. If you hit the auto-sort, it should automatically merge all items of the same type. I shouldn't have ten stacks of 1-5 healing potions, they should all be grouped into one stack.
Same happens with all consumables, food, and other items that can stack. Sometimes some things will stack, but most of the time they don't.
Second, items should be sorted by TYPE FIRST and then alphabetical.
Instead of all weapons being sorted alphabetically, thus making you have to search through for shortswords or longswords or whatever... the sort should be based on ITEM TYPE first. So all shortswords together, all longswords together, all halberds together, and then sort those sub groups alphabetically.
Same should apply to armor. At the very least sort by clothing/light/medium/heavy. And then sort those sub groups alphabetically.
That will make it VASTLY easier to find gear we need.