So I forged 36 daggers and various other items and gave them to Lydia to carry to a merchant and make some coins BUT now when I take them back, they show in my inventory as "stolen" which means I cannot sell my own wares....?

Anyone else have this issue?

Yep! http://www.gamesas.com/index.php?/topic/1274377-items-traded-from-companions-get-stolen-flag/page__view__findpost__p__19285231__fromsearch__1. About 75% of my property is now "Stolen" because of this. I used Lydia as sort of a "moving truck" when I moved from Whiterun to Markarth.

I think it has something to do with a glitch that allows the companion to carry an infinite amount of goods by "Asking them to do something" and instructing them to pick up items off the ground or empty out containers. (This is how I moved houses).

Also in using this glitch I found out that I SOMEHOW messed up Lydia's weight limit, and now she can't even hold an entire set of armour without me having to resort to said glitch to get her to pick it up.

Oh...did you end up finding a fix for that? That's what happened to me too, I just wasn't moving houses.

I tried putting a "stolen" dagger in the chest then get her to retrieve it from the chest then I took it back from her and it's still stolen. However while it's in the chest or in her inventory, it is not "stolen" anymore. Only when I take it, is it stolen.

*sigh*

I've tried everything. Trading her stolen items, getting her to pick them up off the ground and out of chests, with different combinations of save/reloads, dismiss/follow commands... Nothing. Most of my stuff is still stolen, and her weight limit is still buggered.

I did read on the wiki that if you drop a stolen item in front of a random person, and they like you enough, they'll pick it up and give it back to you and the stolen flag will be removed. I only had this work ONCE, and I can't get anyone else to pick up my items. I also have so many now that it's way too time consuming. I guess I'll just have to do Thieves Guild quests so I can sell stolen items to a fence (assuming there are fences in this game).

There is a Speech perk, get it to 90 and you can sell stolen stuff to normal merchants. Both ways about it, Thieves Guild or speech perk, are gonna take awhile but at least the option is there Thanks for responding Avengerr

No problem, and thanks for the heads up on that Speechcraft perk - I didn't even know it was there. I sell things to merchants on a very regular basis, so I could probably get to 90 Speechcraft relatively quickly.

Hmm sorry to hear of your woes but a good heads-up for anyone who wants to avoid the same issues