Isn't there a chance that many companies are forced to compromise on design because all the really *good* thing-designs have already been patented by someone else?

You can't patent a design.</pedant> (You can *register* a design in the UK, but I don't believe that has international applicability. You can probably indirectly patent designs, if you've got a sufficient wad of cash to blow on patent attorneys.)

Surely a design is capable of also being an 'invention' - eg, device for dispensing instant coffee with minimal spillage, or similar?

Yes, a "method of minimising wastage during dispensing of a granulated substance" or somesuch probably would cover the design of any crucial subcomponents used in the process. It just has to be expressed in the right way; you're not patenting the design per se, you're patenting the invention. (It's probably more subtle and can be better expressed than I've put it.)

You’d hope in that case that all the really good designs had been patented over twenty years ago, and were now in the public domain. I mean, how difficult was it to design a coffee jar in the 60s?