Thats been my exact stance on the whole idea from the beginning. The comic Joker did not choose to be that way, he's stuck like that, and Batman is partially responsible. TDK Joker can be normal if he wanted to, all kinds of people have scars much worse and lead a regular life. This Joker chose this path for whatever reason, and to me, is much more of a psychopathic maniac for doing so. He chooses Batman as the target of his viciousness, he doesn't have Batman to blame for his physical situation, like the comic Joker does. Not saying it makes it right, but it makes it a little understandable.
I also do believe the Joker is insane, anybody that can kill so freely is pretty nutty to me, it has nothing to do with his level of intelligence or his ability to strategize. I do agree with Saint to a certain extent that insanity is more or less used as a blanket term legally, but throughout history we've seen real life men who were smart and cunning and IMO, also insane. To me, it means mental instability, although not a pure scientific explanation. Psychotic, or outside of normal thinking, is what this Joker is all about.
Yeah, he maybe able to explain or come up with all these reasons for why he does what he does, but in the end, killing people isn't normal or rational or anything someone in their normal state of mind enjoys to do. Add to that, the manner in which he does it, theatrically, with the visage of a clown no less, and its apparent to me that he's not really normal at all. Depending on your views, you may feel he's the only one who makes sense, but therein lies the beauty of the character, and is one of the many reasons that he's the greatest villain of all time. It's also why he's correct on one thing, and that is the fact that Batman isn't so different after all himself...