You know who Red is, right? He's more than an NPC, he's 'you'. You get to fight 'yourself'- Red is the player character from FRLG/RBY versions, and he kicks absolute ass just... because.
I don't think he's overpowered, I think Mt Silver's Pokémon could do with being a bit stronger so you can train properly there. That, or the League could do with being slightly lower in level after it levels-up. There's a big leap from Blue to Red, despite them having been close rivals in the past, and it makes for a bit of a scare when you go to challenge Red and he starts up with a Pikachu level 88 right off the bat. Regardless, I don't think he's overpowered; I think it's appropriate that he's as strong as he is.