So glad you asked this. It is a question I've wondered about, too. Will be watching for answers to your question.

Mary

A qualified yes.... there is extra soil to hold water & this can cause root rot... solution depay watering untill soil is damp not wet

The problem is not the size of the pot but that many soils sold for potting are too moisture retentive and depend on the transpiration and evaporation to remove water from the soil. Much information is available on the container growing site to solve this problem. Al

As mentioned above it's usually the soil thats the problem not the container size. Seedlings have very fine roots and can easily rot if the soil holds too much water. Most seedlings can benefit from a free-draining soil. As Al said there is much information available on this topic over in the Growing in Containers forum.

Personally I grow my seedlings in very small containers then transplant them to larger containers as needed.

One would think that if a pot could be too large then any seedling that started from a seed that had fallen in the wild would be in trouble. Probably most seedlings from seeds that fall in the wild are, in fact, in trouble but some make it anyway.

It is not appropriate to compare seedlings in the ground to seedling in a container. Al

Indoor-grown seedlings also have to contend with limited air circulation, which together with soil that stays damp too long (because there are few roots to take it up) promotes damping off and other diseases.

The dangers of transplanting to too large a pot can be exaggerated (especially with fast-growing plants like peppers and tomatoes), but I wouldn't try starting them out in a 12" pot unless I used a very free-draining mix and had good light and air movement.