If someone legally lived in a country (no matter current status), at some point in the past, for over 12 consecutive months and still is living there, CIC has the discretion to send the application to either applicant's country of origin or the current country that the applicant resides. I did notice that when CIC decides which way they would go, they do have the applicant's current situation weight into the consideration, such as if the applicant is living with sponsor in that country, the length of the relationship, how long had the applicant lived there, how deep the applicant had put the root in that country, if the applicant has kid(s) with sponsor and etc. If they determined that the case is simple, straightforward and likely genuine, then most time than not, they will keep the case to the VO to that country. To your case, the VO is CPC-Mississauga. And also, it is because overstaying VISA or Crossing border without inspection for the first timer is a civil violation in US currently, so CIC really doesn't care about it. But if the US changes it to a felony (It might, who knows, the house tried before), then that will be a completely different animal we would talk about.
Also, the situation of your spouse doesn't apply to others that overstayed their VISA. Those had VISA has to disclose the immigration history to CIC, because they had a record with US immigration and Border Agent, and CIC will find it out easily. If they forgot to mention it or tried to omit it, that may count as misrepresentation, in the eyes of CIC.