the Nazis believed many things considered insane even by the average Joe's lowly standards, like "mass-murder is a good thing".

This doesn't necessarily mean they weren't rational, only that if they were their utility function was very different from yours. (Though Hanlon's razor -- and this which is a pretty good argument for it -- makes me assign a higher prior probability for the former than for the latter. I haven't looked for evidence which would raise or lower that prior, though.)