I reckon the massive overclock is possible on this chip because it's target is low power embedded systems not high performance multimedia machines, (like amiga
As for heat, digital circuits draw current and dissipate power mostly only when bits are changing state. Change state faster and the average current therefore increases. But double the speed~double the current~QUADRUPLE the power or heat. Power is proportional to the square of the current.
ie. chips get hotter faster than the clock gets faster. Chips will fail to work but still get hot when the overclock is so great that they cannot attain valid logic levels in the time allowed by the higher frequency. This is why you increase voltage to achieve a stable overclock. The higher voltage causes more current to flow allowing the chip to reach valid logic levels in time. But again, power increases in proportion to the square of this current increase. Overclocking in this style is a double whammy of heat problems.
The fact that this is not necesarry on this chip tells me that the 7Mhz spec must be a big underclock for power considerations otherwise this would never work at 50Mhz. If the minimig has proved this chip is good at 50Mhz, and you don't care about power consumption, (which is still low, just not decades of battery life low), I don't see a problem. The fact that the reprogrammable design allows the designers to easily add a variable speed option is pretty smart though. Great project, I hope it is successful.