Twitter was right in doing so. In my opinion, they perceived it as an immediate problem and took the time to immediately let their users know of the possibility of compromised passwords. Even if that did not happen, it was a good decision on their part. Every company should be like twitter, it shows that they care about their customers and are there to quickly resolve their problems.
In this case, I think Twitter was correctly following the rule of better to be safe than sorry. Most people should be changing their passwords every 60 to 90 days anyway, but never bother to do that. So Twitter erred on the side of caution, and also got people to make themselves more secure in the process.
If Twitter accidentally notified thousands of users that their passwords had been compromised when that was not the case, then they clearly made a mistake. While some people may have a hard time accepting the fact that people tend to make mistakes from time to time, it doesn't make the happen less. It's not a matter of rather or not it was acceptable, they didn't do it on purpose.
Twitter thought that was the initial problem, so they instructed its users to change passwords as a precaution. Twitter wanted to "shoot first, ask questions later" because an actual data breach would have been deadly for the social network. In contemporary society, consumers have discovered that data breaches happen all the time. Twitter tried to act prudently, not rashly.