Ms James, a 38-year-old mother-of-two, was stabbed 68 times in June 1980 at her Thornbury home and bookstore.

Counsel assisting the coroner, Sharon Lacy, on Wednesday said authorities were responsible for five major errors that would have hamstrung the police investigation.

The most significant of these mistakes was the use of a blood-stained pillow case in 2003 - thought to be from Ms James' home - to rule out a handful of key suspects.

But it was in 2017 revealed that the item was from an unrelated case, which Ms Lacy said cost "14 years of potential progress".

"It simply seems extraordinary and I would expect that Adam and Mark James want to know how five errors, which have impacted them finding an answer, could have happened in one case," Ms Lacy said, referring to the murdered woman's sons.

"It is bizarre, yes," Sergeant Rodney Jones said in response.

"This has consumed me. Honestly, I wake up in the night and think about it."

In June this year a quilted bedspread from the crime scene was recovered, the inquest has been told.

But other items of evidence, including Ms James' blood-stained clothes, have long been missing from the police exhibits.

Mr Lacy asked Sgt Jones whether there was any prospect of locating Ms James' clothes, including her green jumper.

"No," he told the Victorian Coroners Court.

"Because of the passage of time (and) because of the relocation processes ... if it was handled or touched in the last 30 years, there would be a record of it."

Meanwhile, police records show pillow slips were taken from Ms James' home in June 1980, but their whereabouts are unknown.

Coroner Caitlin English asked Sgt Jones whether, given the quilted bedspread was recovered, it would be possible for the missing pillow cases to also turn up.

"I don't believe the quilt was ever missing ... it just wasn't retrievable electronically," he responded.

Ms English persisted, asking Sgt Jones whether he had pursued all possible avenues for finding the pillow slips.

"Correct," he said.

It has also been revealed that blood-stained bedding items stored by police were destroyed in November 1994 after being considered a "biological hazard".

Sgt Jones said he believed this may have been triggered by the HIV/AIDS crisis and a notorious Australian public safety advertisement that aired in 1987.

"The term biological hazard is motivated by the Grim Reaper campaign in the late '80s," he said.

"That may be the motivation for not holding them beyond their investigative use."

Ms Lacy asked if there was a commonly held fear that touching blood-stained exhibits may transfer HIV/AIDS.

"Yes, that's my opinion," Sgt Jones said.

The inquest continues on Thursday.

Australian Associated Press