These people get locked away because their self-esteem is at an extreme no sane human would ever reach

I work in a psychiatric hospital, and I don't think self-esteem has much to do with it. You only actually get locked away if a doctor can convince a judge you're going to get yourself or someone else physically hurt (To be fair, this was different in Nietzsche's day.)

I'd say the vast majority of people with poor reality testing, including inaccurate self-assessments, are living in the community rather than in locked wards. Which does reinforce your message: it could be any of us.