I would rather it just doesn't show the option at all though

Things popping up on screen have adverse affects when you cannot carry out the task its telling you to do.
It's all in your head. You see a redded out weapon you think GODDAMIT WHY CAN I NOT PICK UP THIS GUN!
you see no gun and you are none the wiser because there was nothing for you to do

Edit: Over-encumberment will never work in an FPS