Do people really pass on candidates that often because they're too impressive? Overqualification in general seems like the kind of spectre that I just can't see translating to the real world.
Not an automatic rejection, but it certainly requires a conversation. I recently had to go back to a candidate to triple check that she really, really was fine not leading a team anymore, with no timetable on when that might happen again. After a few days, she withdrew. We were bummed, because she was great, but we had suspected it wasn't really what she was looking for.
Sometimes that's the case, though. I've led teams before, and I don't mind going back to just head down focused on code again. Leading people tends to be more lucrative but also dulls the coding blade.