To start with, RAW identifies "pick up an item" as a move action provoking an attack of opportunity in Table 8-2 of the PCR. The actual Move Action used is the "Manipulate an Item" action, which doesn't specify the location from which you pick up an item (page 187, PCR).
Therefore, the RAW for "pick up an item" does not specify location of object picked up.
As to how to play it at your table, a rational conclusion is that if you've got the Reach to attack that square, you've got the reach to grab an item from that square. So, as a medium creature, you could grab anything in an adjacent square successfully.
This interpretation is supported by the rules for disarm, which state that you can automatically pick up a weapon dropped by an opponent, if you've made the disarm check successfully while unarmed yourself (page 199, PCR). You'll note that those rules don't stipulate that you're catching it out of the air or snatching it out of the opponent's grasp. It specifically states that you pick up the dropped item. Hence, you're picking up an item in his square. Therefore, you should be able to pick up any other item in his square, subject to the normal AoO.
