Overallocation is due to the sum of assignment units (called peak) being greater than the resource's max units. So even if the resource is scheduled for less than 8 hours per day -- if she is scheduled for two tasks each with one hour for work but the tasks overlap -- she's overallocated.

I'd check your settings under Leveling Options -- ensure it is set to "day by day" or "week by week" - that may help.

Julie