Try this:
<script type="text/javascript">
window.addEvent('domready', function(){
var LoginForm = $('user_form_login');
LoginForm.getElements('[type=email], [type=password]').each(function(el){
new OverText(el);
});
// *** New part ***
LoginForm.getElements('[type=email], [type=password]').addEvent('change', function () {
this.getNext('label').set('text', '');
});
});
</script>
EDIT:
(Another alternative since its difficult to detect auto-fill)
var All_El = LoginForm.getElements('[type=email], [type=password]');
var re_check = setInterval(function () {
All_El.each(function (el) {
if (el.value != '') {
el.getNext('label').set('text', '');
}
});
}, 400);