I've got this M1 painted Baragon and his legs are toed in, probably the result of being in the bag too long
(I bought and liberated him in 2010).
Anyone else see this on their bagged toys? Would this be reason enough to leave MIB toys in their bag?
Or even more of a reason to remove vinyl toys from their bags before this happens?

Seems odd that being in a bag would cause that sort of deformation
How did you store the figure, and was it lying on its side or standing? I wonder if some figures just deform like that, even if they are outside of a bag? ...i.e. vintage Bullmark Gorosaurus were notorious for having their leg joints deform over time

I had this issue with my Marusan M-POP Goji set. The ol' hairdryer trick mostly fixed it.

I've had vintage bagged toys become discolored and even had one clear toy's leg shrink a little so anythings possible (especially enclosed in bags) with these polyvinyl chloride off gassing toys! Doesn't look that bad though. Nothing a blow dryer and cold cold water can't reset.

Yeah, good point. I assumed it could only be because he was locked in a bag and hanging
but I suppose it could be another, yet unknown reason.
Looking at my picture now, even the seam on his left arm looks to have a larger gap than on the unpainted example.
Maybe that is only an illusion made by the paint?
He has been displayed standing ever since I got him and I noticed his condition before even opening the bag.

Yeah, I'm not too bothered by it. Standing displayed behind some shorter figures, you don't ever see his legs.
I offered him as part of a trade in a desperate attempt to get a Target Earth Gamerudon (that didn't work out).
After that I figured I wasn't really that attached to him and so I put him on my trade list.
Now that I've noticed the leg issue again, I'm thinking he will be better off remaining in my collection.
I will give him the blow dryer/cold water treatment this weekend and report my results.
Thanks guys!

That Baragon could have been sitting in a box with other toys for the last 10 years before you bought it and got smashed, I've seen that a 1,000 times. I've done it myself with things I've had for years and never got around to opening. I've stopped storing toys that way now, all my toys stand and have nothing on top of them anymore when boxed.

Also, toys do get deformed when pulled from the mold. You don't see it much with new toys as they are usually rejected but in the old days they would usually just use it unless it was pretty bad.