Is it possible?
I think there are two ways to answer this question.
1. If every user uses this amount, it probably isn't possible. Even though disk space prices are falling, if every person who signed up used that amount offered, the owner would have a hard time making money.
2. If most users didn't use more than, say, 10% or 25%, then yes, there is a market for that and it is possible. You'd need a lot of accounts to make money, but assuming not everyone uses 100% or more than 25%, it is possible.
Yup, that's overselling. Add another 1TB to each and another $3 and you've got your average hosting company now-a-days.
Theoretically you can continue to increase the numbers at a steady pace and continue to keep/attract more customers. No matter how big you make the number, this is not going to make the customers that only use 500mb~1gig use more just because they can. They generally use what they need and the top end value of an overseller doesn't really matter.
When the top value does matter, the customer is often not on the server very long. Theoretically they could just say "unlimited disk space" as you will never hit their 1tb or 2tb or 5tb limit, much less "unlimited" but if they go to unlimited... how do you improve upon this?
I'll make a comparison to cars... You could buy a car that can do 150mph or a car that can do 220mph for the same price - if top speed was the only variable, it would make no difference what the top speed was because generally the speed limit is quite a bit under 150 and 220mph. There are special places such as race tracks and drag strips that you could possibly hit the limits, these would be the oversellers that actually have the capacity to completely give what they offer, where as with any other road you'd hit the speed limit well before you ever hit your car's top speed. Selling hosting by overselling is the same as selling a car based only upon top speed. This is not necessarily the best analogy but it works for me.