My point is that he doesn't have a warped perception of reality (in the diagnosable sense), being criminally insane would require that he be incapable of understanding what he's doing and/or the reasons why doing those things are wrong.

Joker not only is perfectly capable of understanding he's doing wrong and why the things he's doing are wrong, to him that's the entire fun of the joke.

I agree though that'd be an amazing story, but what'd be even better would be if it was a story about Batman defending the joker's insanity plea because it turns out that his own no kill rule is actually a legit mental health disorder compulsion that extends to doing everything (legally) possible to prevent a jury ruling that leads to a death penalty sentence. It'd also be a pretty stunning reversal of Joker's typical "one bad day" philosophy, that Batman is sticking his neck out in the court of public opinion on the belief that even the joker can be rehabilitated.

Honestly you could probably insert them as The Buddha and Angulimala and have a fucking wicked turnaround about what redemption actually looks like, because that story doesn't just feature an absolutely heinous criminal turning his life around and in the end actually achieving enlightenment, but also him having to live with not everyone forgiving him or even owing him forgiveness because all the atonement in the world doesn't change that he still did real harm to them that can't be undone.