Regardless of whether Michigan/App State was more competitive than, say, Michigan/Temple would have been, the line still would have been huge, because Vegas would know everyone would pile on Michigan against any I-AA school. I'm thinking something on the order of about seven touchdowns. I've seen 49-point lines several times in early-season squashes.
But yes, I can see how it might not be the stupidest idea ever, even thought I personally disagree.