The Irish, who had won their last 10 matches, conceded five tries - two from Will Greenwood and one each by Lawrence Dallaglio, Mike Tindall and Dan Luger - in losing 42-6 to an England team playing with formidable power and speed.
"They are the number one team in the world and they are right on top of their game," said O'Sullivan.
"They defended very well and in the second-half they strangled us up front and struck at critical moments. Tindall's try especially was a stake in the heart.
"They have seen everyone off in the autumn and seen everyone off in the spring. With that sort of form over the year they must be favourites for the World Cup."
O'Sullivan admitted his side were beaten by the "better team" and conceded that Jonny Wilkinson, England's man-of-the-match fly-half, was "outstanding".
"We feel down and we are very disappointed," said O'Sullivan. "But if anyone had told me last August that we would play 11 matches and have won 10 I'd say that's not a bad run.