The real answer is it depends on the application and the abilities of the shooter. An untrained yahoo with an M16 who only knows how to 'spray & pray' is most certinly dangerous, but not nearly as effective as a good trained rifleman armed with a semiauto AR15. Of course if you take that rifleman and hand him an M16, he is probably going to be even more effective. Short controlled and aimed 2rd or 3rd bursts can help put a little extra fire on you target, do a bit more damage, and keep their heads down. Additionally, since most full auto guns are actually selective fire (safe-semi-full/burst) it just provides an option for F/A that does not always have to be used.
Is it overrated? Probably to some extent. Just because a gun is full auto, does not instantaneously transform it into a perfect killing machine. It still needs an operator and the skills of the operator will ultimately dictate how effective a weapon is (full auto or otherwise).
As an example, I used to compete in a monthly SMG match. I would often use my first M11 SMG rather than some of the better guns I had to use (Uzi, M16/9mm, etc.). Engagement distances were 10-20 yards on average, with a timed multi-stage course of fire, time penalties for hitting 'no-shoots', etc. With my basic M11, I would occasionally outshoot some other guys with much better weapons (MP5's, Swede K's, M16's, etc.). Is an MP5 a better, more controllable, and more effective wepon in full auto than a cheap SWD M11? Absolutely, but the reason I outshot them had less to do with the weapon and more to do with practice, reflexes, and fast thinking.
That said, in my opinion it is pure fun too. It may be overrated as a toy or fun thing, but as 444 mentioned, what isn't? Some people pay thousands and thousands of dollars for a TV or a boat. Is that overrated? In my opinion it is, but I'd rather have a machinegun than a boat or a gigantic TV.