The avatar state enables the use of yet unlearned elements - this is shown with Aang waterbending in season 1 episode 2, and earthbending in season 2 episode 1. She's still in the avatar state here, so can still use them.

Don't worry about it making all the battles boring - Kyoshi won't learn to control it for a while yet.

And yes, it is overpowered. Canonically, though.