no the card isnt defective, problems with overdrive are unfortunately pretty common place atm. if you go into the review section on this site you will see that even when overdrive works on a card (as it does on the visiontek 9800 XT), its not giving the performance you can get from manually overclocking with powerstrip/rage3d tweak etc.
I know everyone wants to get overdrive working but for now, leave it disabled and use manual overclocking, overdrive is not particularly effective, at this time anyway and certainly wont give the performance benefits you will receive from the old style way
To test the maximum overclockability of your card this is a simple procedure I recommend.
Install either powerstrip or rage3d tweak (or another tool of your choice). then overclock your core to 420mhz. install 3dmark2003, and run nature test 4 several times, watching out for graphical corruption or any other abnormalities such as dots, spikes etc.
If the test runs fine (as it should at this speed), go back into the overclocker, and increase by another 5mhz and repeat. continue this process until you start seeing problems, then downclock by 5mhz. some core will hit up to 470-480, and some only 430 so this is very dependant on the card.
Repeat the procedure for the ram, 5mhz increments. the ram should hit between 385-405 easy enough.
hope this helps.