Periwinkle, you bring up a very interesting issue: being well-dressed as a sign of inferiority and higher job insecurity. It makes a lot of sense! Being "casual" and "ugly" becomes an earned right...
That the lower one is on the scale, the more stress they must devote to their appearance.
This said, I think personally that even if you can underdress, it is poor judgement to do so on a regular basis, especially if you have people working under you.
As for wondering about dressing better than your superior, I'd say that if you are feeling something now, there might be some tweaking needed. Maybe it's a question of adding some versality in your outfits. I am thinking more precisely: shoes you can change from heels to flats; a more casual, yet still smart jacket, that can be removed and sleeves rolled up for an impromptu meeting with other casually dressed colleagues. Including more cotton - as opposed to slky materials - and linen to your wardrobe. Or go casual in a more preppy way (khaki skirts with polos that can be topped by a more classic, navy jacket, for instance).
When I see colleagues err, I must say I can't stop myself from judging them. Even my superiors, even guys. Like one colleague is having fun with his hair, adopting extreme facial and head hair styles, and each time I see him I wonder what is going on in his life... then a couple of other mature female colleagues dressing overly sexy. I don't need to wonder what is going on (or rather, not going on) in their lives! I wonder if people judge me for being well dressed.