One of the problems with the 'going insane' idea is that he had a whole crew. These people were supposedly miners and maybe could be considered 'rednecks' or something, but why would not a single one of them have the idea, "Why don't we go use the red matter on the Hobus star now, and save Romulus BEFORE it explodes?"
Maybe there's a missing scene where Nero hears that and harpoons the one that spoke out of turn or something and so the rest of them kept their mouths shut. Or maybe when they captured Spock, he suggested it, so they decided if it was his idea, not to listen to him anymore. Who knows? It could have been better developed. As it was, Nero is a cardboard cutout villain with no depth. Khan had depth, but a lot of it was due to having "Space Seed" to refer to, rather than content in "Wrath of Khan" if you think about it.