Are narcissists insane?

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"Insanity" is not a medical - or even unequivocal - term.
Personality disorders are an excellent example of the kaleidoscopic landscape of "objective" psychiatry.
The classification of Axis II personality disorders � deeply ingrained, maladaptive, lifelong behavior patterns � in the Diagnostic and Statistical Manual, fourth edition, text revision [American Psychiatric Association. DSM-IV-TR, Washington, 2000] � or the DSM-IV-TR for short � has come under sustained and serious criticism from its inception in 1952, in the first edition of the DSM.
The DSM IV-TR adopts a categorical approach, postulating that personality disorders are "qualitatively distinct clinical syndromes" (p. 689). This is widely doubted. Even the distinction made between "normal" and "disordered" personalities is increasingly being rejected. The "diagnostic thresholds" between normal and abnormal are either absent or weakly supported.
The polythetic form of the DSM's Diagnostic Criteria � only a subset of the criteria is adequate grounds for a diagnosis � generates unacceptable diagnostic heterogeneity. In other words, people diagnosed with the same personality disorder may share only one criterion or none.
The DSM fails to clarify the exact relationship between Axis II and Axis I disorders and the way chronic childhood and developmental problems interact with personality disorders.
The differential diagnoses are vague and the personality disorders are insufficiently demarcated. The result is excessive co-morbidity (multiple Axis II diagnoses).
The DSM contains little discussion of what distinguishes normal character (personality), personality traits, or personality style (Millon) � from personality disorders.
A dearth of documented clinical experience regarding both the disorders themselves and the utility of various treatment modalities. Numerous personality disorders are "not otherwise specified" � a catchall, basket "category".
Cultural bias is evident in certain disorders (such as the Antisocial and the Schizotypal).
The emergence of dimensional alternatives to the categorical approach is acknowledged in the DSM-IV-TR itself:
"An alternative to the categorical approach is the dimensional perspective that Personality Disorders represent maladaptive variants of personality traits that merge imperceptibly into normality and into one another" (p.689)
The following issues � long neglected in the DSM � are likely to be tackled in future editions as well as in current research. But their omission from official discourse hitherto is both startling and telling:
The longitudinal course of the disorder(s) and their temporal stability from early childhood onwards;
The genetic and biological underpinnings of personality disorder(s);
The development of personality psychopathology during childhood and its emergence in adolescence;
The interactions between physical health and disease and personality disorders;
The effectiveness of various treatments � talk therapies as well as psychopharmacology.  
"Insanity" is not a medical term. This is true. However, there is a legal definition of insanity, which is being unable to act or make decisions based on sound reasoning. According to this definition, narcissists are not insane, because they make their decisions consciously.
On the other hand, if you're speaking colloquially, in that "insane" refers to the inability to think or feel normally, then the answer is yes. People with Narcissistic Personality Disorder do think and feel differently from normal people.
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