If we weren't good enough to make the Final 4, we simply weren't good enough. As you said, "You're supposed to beat the 4 seed when you are the #3 overall seed."
While we weren't beat by a better or more talented team, we were beat by a slightly worse, but highly talented team that executed far better. However, it's not like we were so much better than the field (Gonzaga excepted), Loyola, or our schedule that we only had a loss or two heading into the tournament. Yeah, we got hot at the right time, and won a substantial number of games in February and March, but we weren't steamrolling the teams we played. But we lost a lot of games this year.
I think very highly of this team, as a talented but flawed team that put together a great run and likely peaked a week or two too early. The disappointment is acute because we hadn't tasted the tournament for so long, and we led ourselves to believe that our talented but flawed team likely had a better shot to win it all than they actually did. The entire B1G has underperformed, so I tend to believe that we were all somewhat misled by the inferences we made from KenPom, Torvik and other advanced statistics that convinced us that our league and team were better than other teams -- you still have to play and win the games to crown a champ. Like we said about Michigan not playing the games -- anyone can beat anyone on any given day.