It is very easy for a person to be both pathologically narcissistic and psychotic, because psychoses usually comes and goes in episodic states. Pathological narcissism is a constant, however, episodes of psychosis would elevate other aspects of the affected person's personality which would put less emphasis on narcissism and more on psychotic symptomology (i.e. delusions, hallucinations, grandiose notions). Pathological narcissism and psychosis go hand in hand in most psychotic disorders, for a blatant example look at the average case of bipolar disorder whose diagnostic markers include psychotic episodes (psychosis) and grandiose notions (psychotic in nature, but related to pathological narcissism). In schizophrenia there are often instances of an elevated sense of importance (e.g. narcissism) which inititates entire delusional typology of the person being a "chosen one" from a particular religious viewpoint or being so important that the FBI/CIA/KGB etc is "watching them" "trying to kidnap/kill them" etc. However, even though the delusion may begin due to narcissism, the delusion itself begins to take over the entire vision of the affected person--hence the psychosis outweighs the narcissism, although technically they are both still present.
Pathological Narcissism., Psychosis, and Delusions
By: Dr. Sam Vaknin
http://samvak.tripod.com/journal91.html
Though the narcissistic personality is rigid its content is always in flux. Narcissists forever re-invent themselves, adapt their consumption of Narcissistic Supply to the 'marketplace", attuned to the needs of their "suppliers'. Like the performers that they are, they resonate with their "audience", giving it what it expects and wants. They are efficient instruments for the extraction and consumption of human reactions.
As a result of this interminable process of fine tuning, narcissists have no loyalties, no values, no doctrines, no beliefs, no affiliations, and no convictions. Their only constraint is their addiction to human attention, positive or negative.
Psychotics, by comparison, are fixated on a certain view of the world and of their place in it. They ignore any and all information that might challenge their delusions. Gradually, they retreat into the inner recesses of their tormented mind and become dysfunctional.
Narcissists can't afford to shut out the world because they so heavily depend on it for the regulation of their labile sense of self-worth. Owing to this dependence, they are hypersensitive and hypervigilant, alert to every bit of new data. They are continuously busy rearranging their self-delusions to incorporate new information in an ego-syntonic manner.
This is why the Narcissistic Personality Disorder is insufficient grounds for claiming a 'diminished capacity' (insanity) defence. Narcissists are never divorced from reality they crave it, and need it, and consume it in order to maintain the precarious balance of their disorganised, borderline-psychotic personality. All narcissists, even the freakiest ones, can tell right from wrong, act with intent, and are in full control of their faculties and actions.
**Or, are you talking about pathological narcissism and Brief Psychotic Disorder?