Preheat oven to 400°F. Line a 2-qt. rectangular baking dish with foil or parchment paper. Place squash halves, cut sides down, in the prepared dish. Bake 30 minutes.
Meanwhile, for meatballs, in a large oven-going skillet heat oil over medium. Add mushrooms, onion, and sweet pepper; cook 5 minutes or until tender, stirring occasionally. Stir in Italian seasoning, black pepper, and salt. Transfer mixture to a large bowl. Stir in bread crumbs and egg. Add ground beef; mix well. Shape into 16 meatballs and place in same oven-going skillet.
Place skillet in oven alongside squash. Bake 15 to 20 minutes more or until squash is tender and meatballs are cooked through (160°F). Drain off any fat from meatballs.
Cool squash in baking dish on a wire rack 10 minutes. Using a fork, scrape squash strands into a large bowl. Cover and keep warm.
Add pasta sauce to meatballs in skillet. Cook and stir over medium until sauce is heated through. Serve meatball mixture over squash and, if desired, sprinkle with cheese and/or basil.