a way to detect a preamp stage being overloaded is to monitor the output and try to detect the signal approaching a power supply voltage, or to detect gross changes in the waveform (such as you would get with the signal being clipped). the circuit shown in the OP only detects one half of the waveform, and with actual music or speech, the waveforms are far from symmetrical in real life... something about doing a "diode or" in an audio system seems unnatural to me, maybe if there were buffer amps as rjenkinsgb mentioned, it might not look like a train wreck. something similar to a clipping indicator circuit used for power amps maybe, but those are usually used with an amplifier with fixed gain (usually a differential amp, as long as the input and output waveforms are similar and proportional, there's little output, but if the signal is clipped, the two inputs are different, which appears as spikes on the output of the detector), and preamps with volume and tone controls are anything but fixed gain.