Currently the "Allow overselling of stock when adding quote lines" option will only show a warning when the quantity available is 0. To improve this, it should highlight any row where the quantity being sold is more than the quantity available, not just when its 0.
When adding a quote line to a quote in release 119, there is now an overselling warning icon to tell the user whenever the quantity entered is more than the available quantity. Worth clarifying that this doesnt take account of this product being quoted on other quotes unless those other quotes are set to "reserve stock".
For more information on release 119 please refer to the release notes: https://docs.prospect365.com/en/articles/9166879-release-notes-v119
Release 119 is currently rolling out so if you dont have this update yet you soon will !