No, it shouldn't be overacted. When the actors are really in it, that show overcomes a lot of it's flaws and is really moving as anyone who saw Lisa Vroman play Christine can tell you. Did you see John Cudia as the Phantom? Because I was very impressed with his Phantom when I saw it.
Overacting isn't always bad. Depends on the tone of the show. Edna in Hairspray wouldn't work any other way... though maybe that's more being self-aware than overacting.
If the audience could do better, they'd be up here on stage and I'd be out there watching them. - Ethel Merman