What version of m2e-wtp are you using? This look very different from the file you'd had if the overlay support was properly active.
Overlay support was added in 0.13.0. Version 0.13.1 is currently available from the eclipse marketplace or http://download.jboss.org/jbosstools/updates/m2eclipse-wtp/ directly.
If that's what you already use, have you tried removing the war dependency, saving, then putting it back?
Have you tried deleting the project from the workspace, deleting all eclipse config files (.classpath, .project, ./settings/*) and reimporting it as a maven project?