Oversized tires

I just bought a 98 4Runner SR5 4WD. On the inside of the door it reads 225/75/15 tires and 15x7 wheels. The 4Runner has 265/70/16 tires and a set of stock toyota wheels that are 16x7. Is this ok? When excellerating mild to hard it seems the engine over revs before it shifts gears. My 4Runner has 85k miles on it and it seems like the preveoius owner took very good care of it. One more thing when I shift into 4WD (doing 20 and traveling 1/2 mile mabe reaching 40, just to test) it seems that I can smell a cluth burning, no noises or clunks, it just smells like something burning.