Was the Milan team from 03-07 overrated?

The age thing is overstated. It seems to be a bit of a misunderstanding because a lot of their players played on forever and they signed past their best Ronaldo, Ronaldinho and Beckham later on. People seem to think of Pirlo as a perennial old man but he was in his mid twenties during Milan's dominant period in Europe. The older players of the squad Maldini, Stam and Cafu were still top class in the mid '00s, and Costacurta was still solid in reserve. Inzaghi had a better that 1 in 2 record in 05-06, 07-08 and 08-09 despite being a bit part player. Their peak side of 2005 had great depth, with the likes of Abbiati, Kaladze, Costacurta, Šimić, Serginho, Ambrosini, Rui Costa, Tomasson and Inzaghi in reserve. That's an insane bench.
 
During that specific time, the Champions league was probably the weakest it has been in the last 2 decades. Porto, Liverpool, Monaco, PSV, Arsenal and Villarreal were all semi finalists from 03/04 - 06/07.

Yeah, I think this is key. It's not just that they didn't excel domestically, but they didn't really dominate Europe's elite either, at a time when the European elite was at a bit of a low point.
  • In 02-03 they got through the semis on the most ridiculous application of the away goal rule against Inter, before winning on penalties against Juve.
  • In 03-04 they got embarrassed by a Depor team that couldn't even score over two legs against Mourinho's Porto.
  • In 04-05 they just about got through (on away goals) against PSV in the semis. PSV were a decent team but a long way from the European elite. Then Istanbul happened.
  • In 05-06 they faced their first European elite team in the knockout rounds since the 2003 final, and they came up short against Barca in the semis.
None of it was as dominant as previous Milan teams, even looking at it in Europe alone.

The headline win in '89 was the 5-0 against Madrid, but they followed that up with a 4-0 win the final against Hagi's Steaua Bucharest. Likewise the headline win in '94 was the 4-0 against Barcelona, but it followed a dominant 3-0 win in the semi-final against a Monaco team with Klinsmann, Scifo, Djorkaeff and Petit. That Milan team dominated the big teams and swotted away the 2nd tier teams while this Milan team struggled against the 2nd tier teams (Depor, PSV, Liverpool) and didn't manage to beat any of the elite teams (drew against Inter and Juve in 2003, lost against Milan in 2006, didn't play any elite team in between.

It was a collection of world class players that would be dangerous for any team on their day, but it wasn't a great team in the grand scheme of things.
 
Find it very hard to properly judge their league performances during the Ancelotti era taking Calciopoli + the aftermath into account. Personally I see little reason not to assume that they would've performed better in the Serie A during that time, how much better will obviously forever be guesswork.

But at the very least I literally don't understand how we can accurately judge their league campaigns and draw many conclusions about the results, since that league was genuinely rigged for a while and then there was the aftermath with punishments on top of that. Don't think that Milan side is really overrated either - probably rated just fine, as a great team, but a level below some other legendary teams.