A hole in the bottom will not fix the fact that there are two inches of dirt. My bigger plants are in 7 gallon pots filled to the brim. Also, is the pot made of paper? Paper retains water, swelling and basically disintegrating. You should try to invest in some plastic pots. We actually have gotten all of ours for free. Just asked for some at the nursery we go to. Large Chinese soup containers are good for seedlings, but you have to tape around the outside of the pot so that algae doesn't grow and light doesn't hurt the roots.
A plant, without proper training, will not be able to reach it's maximum potential size if the roots are not allowed room to expand. We try to transplant as soon as the plants become root bound. Which is when the roots have literally taken over, thus needing more soil.
Soil is also really important. Wood mulch and leaf matter are very acidic which is not good for the plant. Sometimes you have to spend a little more than you want to on soil, but it really isn't just dirt. It's an ecosystem. Peat/Sphagnum moss and perlite are also very good additions and both are inexpensive.
Edited by farmerone, 21 August 2012 - 06:43 PM.