Use English rather than Latin or use hyphenation for Latin via the babel package and the overflow problem would go away!
\documentclass[a4paper]{article}
\usepackage[latin]{babel}
\usepackage{lipsum}
\usepackage{shapepar}
\begin{document}
\lipsum[1]
\shapepar[8.5cm]{\circleshape}
\lipsum*[1]
\end{document}
This will also work, that points certainly that there is some sort of overflow due to hyphenation not being achieved.
\documentclass[a4paper]{article}
\usepackage[english]{babel}
\usepackage{lipsum}
\usepackage{shapepar}
\begin{document}
\shapepar[8.5cm]{\circleshape}
a an ann anne lo res ar t t \lipsum*[1]
\end{document}