Is it better to be overleveled or underleveled? Presumably, overleveling would increase your compensation at the risk of not being able to deliver and being washed out early.
It will take a little while for you to "wash out" as you put it, and in that period you can just look for another job with a better anchor point. In the mean time you'll be getting paid significantly more.
I also think that the levels are noisy. A good enough L4 can manage a "good enough" rating at L5 almost always. The hard part is actually getting promoted.
On the other hand, you might be getting "average" ratings (where average translates in practice to poor - a paradox culture of everyone always expecting you to exceed the expectations ;) ), and after 4 years when the initial equity grant runs out, refreshed will be lower and you will start having significantly less stock (which is definitely more than half of the total compensation on higher levels).
(Also IMO it's rather impossible to get overleveled.)