No, it should be correct. If you have an oversized tire, and your odometer says you traveled 1 mile, you actually only traveled something less, let's say .75 mile. If you say you used 10 gallons to go 100 miles, based on the mileage your odometer spits out, then you would think you were getting 10MPG. In reality, you would have only traveled 75 miles, and thus your actual MPG would be less, in this case 7.5MPG.

Of course I realize these #s do not apply directly to this case, and I;m not saying anyone gets 10MPG or 7.5MPG. I was only using those numbers to make it easy to calculate for demonstration purposes.

think that's backwards. Bigger tires travel farther across the road for the same RPMs, and hence log less relative miles on the odo.
(At least I hope that's the case. If not, then I'm getting 12MPG with 33s! )