It's pretty simple when you think about it.
It boils down to us having typical MSU talent everywhere, but a stacked JUCO class on top of an upperclass heavy team in general. A lot of that overlap was on defense, obviously. That explains why the defense was #1 but we were still considered an 8 win team.
Remember, we had the #1 ranked defense in 1999 and pretty high again in 2000, and went 9-2 (10-2 in the modern era because we'd have had an FCS opponent now that we didn't have back then) and 7-4 (8-4). Of course, that schedule in 1999 was really easy SEC-wise, I think we drew Vandy, winless South Carolina and Kentucky that year. 2000 was more like 2018. Everybody thought we were national contenders then too, but we proved to be pretenders.