I am aware that others can not normally see your loot drops, and that if you pick something up normally into your inventory and then drop it, others can see/take it. What happens when you touch an item on the ground, but your inventory is full. Does it become visible for others to see (or steal)?
No, attempting and failing to pick up an item off the ground does not make it visible to others, as though you'd dropped it. It stays private to you.
I've seen this demonstrated in a co-op game before.