Getting the backpack upgraded by a special vendor would work. So sticking to options that grow that bag but never let it shrink would be simplest to implement, and I don't expect Blizz to do anything in any way other then simplest unless something good comes from it (and a headache about shrinking backpacks isn't likely to be 'something good').
If it shrank and it had more stuff then the new size allows 'something' would need to be done with the extra items. It would grow when you equip a moonclothbag, then when you remove the mooncloth bag it would have to shrink. Scaling it by the largest bag you have equipped would be a pain.
Comment by the backpack size by level would work.
