Overselling is a valid business model and in the hosting industry everyone oversells to some degree. Overselling is only bad when it causes you to loose more customers then you gain (taking into account advertising spending).
Speak for yourself on everyone overselling, because all three of my servers are in fact quite undersold with plenty of resources to spare at all times. How are your clients, or even other hosts going to trust you when you are lying to them about what you are capable of, and how other people might be running their business.
I don't believe in overselling, in fact I don't even sell the full capacity of my resources- I show about 70% of my most populated server's resources as having been assigned, and I'm considering not putting any more clients on it because I'm satisfied with it's load and it looks good with the bottom line.
By my reckoning, if your server isn't hitting breakeven by the time 60% or so of it's resources are assigned, you should probably reconsider your plan sizes and prices.