As some have said, overequipping in itself isn't a bad thing.
It's like being rich. You have resources to do a lot of things. Even though it's usually quite hard to get rich, it's a goal a lot of people have. There is nothing wrong with it.
But (and this is a big but) the people how aren't rich are going to whine. Envy, it's called. Countrary to public belief, being rich isn't all that nice. It's not needed. A lot of people get by without being rich.
Sum: You don't need to be rich to have a good life, although it might help in some cases.
If this game would have been complete/balanced/fun, then the statement above would apply.
It isn't. Suprise!
With the current mob balance, you have to be rich. Otherwise you'll be dead. The problem is that there are few ways to get rich unless you are rich already. You should NEVER have to overequip just to be able to survive.
That is the problem. This game isn't based on levels, or skills, or time. It's based on items. Sure, the items rely on skills, which relies on levels. But you can always tweak those skills, if you have the right items. It's a kind of evil circle. The higher you get, the more you need to overequip.
Create a character. Give that character equipment that is her/his level. That should be a balanced character.
If you are trailing behind in equipment, it should be a penalty, but your skills should in a way balance that.
If you are ahead in equipment, it should be a bonus, not a requirement.