Actually the interior is plenty big enough for a room inside, holding up to 64 cubic feet, or an 8×8 cube room, the item description reads that the outside dimensions are 2 feet at the mouth and 4 feet deep, while the inside is much bigger. Head Canon here but I always pictured this as a kind of spandex bag on the inside, stretching to accommodate the things inside, up to a point, at which it tears. There are several options to stop yourself from suffocating in the bag, but here are a few of my favorite. The warforged is the easiest option, being nonliving and non breathing race you can just dive in and be fine, however if you want to use a different race there is still water breathing, but you couldn't just fill the bag up. It won't hold that much liquid. So what you can do is use a glass blowing kit or tinker's tools to make a fish bowl helmet, or commission someone else to do it. Then get hold of one of the magic items that give you water breathing (my favorite is the one that puts a bubble of air around your head while you're submerged) Then build an 8×8 a frame inside the bag using wood. Keep in mind the floor and walls are made of cloth and can be punctured, also, including yourself, the bag can only hold 500 lbs, but I think a bag of holding house sounds awesome and a good dm should allow you to alter several bags you've created, to be connected and sewn together to create a house with several rooms. Also remember that each bag is 2×4 feet and weighs 15 lbs, so if you have more than 3 or 4 most characters would have a difficult time carrying them. But it could be in a wagon, possibly giving it a more sturdy floor, or hanging from a horse or other mount.