Yes, that is correct, but that would be an artifact of the domain.xml representing something that does not exist anywhere but the domain level. The only time a deployment would have an override is if it included a domain.xml fragment. This would be a syntactic shortcut to editing the deployment via the profileservice ManagedComponent api. I'm not suggesting that we support that.
I'm not even sure the MetaDataRepository should be involved because I view the domain.xml as essentially a script to run against the lower level ManagedComponent api. That is the only where there is going to be a consistent admin edit view of the server profile/content repository.