Proposal.
MdSelect should have an overlapTrigger input parameter like MdMenu.
Usage:
<md-select [overlapTrigger]="false">
<!-- md-options -->
</md-select>
Something like this:

In the case of the select, the Material Design spec is pretty clear that the selected item should always overlap the trigger and not duplicate the selected item (see the "don't" images here). Because of that explicit instruction, we aren't likely to add this feature to the select.
I understand not having duplicate select items in the overlay itself, but this would be an option that allows for the overlay to always be positioned underneath the select element for smaller lists. The duplication of "Green" in the above example is not a duplication in the overlay list, but rather the currently selected item in the context of the select element.
@JaimeStill It sounds like perhaps we're looking at different images. This one in the "Dont" section specifically calls out that the overlay should always overlap the trigger.

Don't.
Menus are positioned over their emitting element.
Thank you for your time and consideration @kara.
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Most helpful comment
Thank you for your time and consideration @kara.