It's true that 'overselling' is becoming the normal model. A couple of years from now the term 'overselling' won't mean anything.
I'm on the fence about it. We have one server that is probably oversold, but so marginally that it doesn't matter. I do know, though, that hundreds and hundreds of domains are using much less than 200GB of bandwidth per month altogether which is only a fraction of what they are all allocated.
If you look outside of the web hosting biz, there are a ton of businesses that oversell their services. The phone company is a good example. I think by now we all know that if everyone picked up their phone at the same time, a large percentage of those people would not be able to make a call. The system is rigged to handle 'normal' usage and everyone all at once isn't 'normal'.
Consider even mundane examples like any store in your local mall. There are what...1 or 2 clerks working? That's enough to handle normal sales volumes, but if everyone in the mall went to that store at the same time, they'd be swamped.
Any business is based on managing the demand with reasonable resources. No business can give you a one-for-one relationship (which is what not overselling amounts to) and stay competitive. Every business is based on the fact that every customer isn't going to demand the resources at the same time. Hosting is no different.
The good side about this is that these services can be offered at a lower price. At my local coffee shop, I may wait anywhere from 1 to 10 minutes for my coffee and donut in the morning depending on how many people are there. My coffee and donut costs me $2. In order for the business to be configured so that I would never have to wait for more than 1 minute for my coffee, I would pretty much have to have my own coffee server standing by for several hours in the morning to ensure that they would be there when I wandered in. Would this one person stand by waiting for me for $2 a day? Nope, but by managing the resources in a reasonable fashion, a compromise can be reached where I get what I consider to be reasonable service at a reasonable price.
Food for thought...