I thought about something else concerning whether your or your counselor should tell W that she is NPD. Reasons given here to not bother telling her make sense. But there is another reason why you should. NPDs are all about intimidating others, building up a false image of themselves to support who they would like to be. They are dependent on others to help them do this. For this reason, you are guilty of partially supporting and sustaining her venom.
If you challenge this façade, an NPD will either go ballistic in an attempt to intimidate and control the other person back into their supporting role for the NPD, or if they think the jig is up, they will simply walk away and find another victim. I have the feeling that your W may not be the hard-core, full fledged NPD that I seem to be hearing from you. She left the house, trying to set an ultimatum. You did not fall for it, so she came back, acting like it never happened. To further this illusion in her mind, she showed a little affection. I think this may have been a tactic to pull you back into her sphere, since she felt you had slipped from her grasp.
Now you decide there is no point in confronting her with her diagnosis, that nothing will come from it. But something very important can be had. You can let her know that YOU know she is NPD. She won’t like the accusation one bit and will probably pitch a fit. Of course she will deny this, but she will hear you and it will sink into her soul like a canon shot. She WILL NOT show it. But she will feel it. Slowly, it will make a difference.
This is the time I think you need to keep up the pressure. You have her off balance and need to keep it this way for a while. I think you should also tell her that her ultimatum stunt did not work, you knew exactly what she was up to and she is not intimidating or fooling anyone any more. This is no different from standing up to the playground bully and calling him out on all his stuff in front of the other kids. I even think you should do this in front of your girls, possibly with them standing at your side in support of you. That will send a very strong message to your W. It will like be her own ultimatum coming back to her. Then she can understand what she does to others. But you need to get used to repeating this every time she pulls such a stunt. This is a REAL boundary.
Remember, she is not empathic. She does not have any idea how she affects others. The ONLY way to get this message across to her is to MAKE her (not LET her) feel how others feel. Do not let your esteem, lack of confidence, fear, and sense of guilt override this. Confronting her has every bit as much to do with you as with her. NPDs operate in a shroud of secrecy. They harm others, then hush it over, to make everyone part of the conspiracy of pretending it never happened. This makes you guilty of perpetuating your own hurt (and your daughter’s). To break this cycle, you need to bring EVERYTHING into the light.
Admit and confess to all your shortcomings, all your faults, every bad thing you did either directly or by inaction. This will take away all her ammunition to divert and deflect. Then challenge her to do the same and tell her things are now different. Do this in front of your girls. This will take the air out of her power.
Your wife is on a level you will never achieve when it comes to playing manipulation games. There is no way my dad could ever keep up with my mom, the NPD. She can outwit him in her sleep. Don’t try to play your wife’s game. Pull her onto your playing field instead. You set the rules. You tell her what you will tolerate and what you won’t. Don’t even bother to defend your values. As soon as you start justifying your position, she will rip it to shreds. You can not win. She has you totally outclassed.
This is why I tell YOU to decide what needs to be done in your family. Stop checking with the counselor, your daughters, this board, for confirmation of what your next move should be. Your wife can sense the indecisiveness in you and has taken advantage of it. If you make strong, forceful, determined decisions and actions, regardless of whether they are right or wrong, she will feel her influence challenged. If your decision is wrong, admit it, correct it, move on, and don’t let her hold it over you. Don’t bother to discuss it. This empowers you.
In fact, I actually see no harm in being VAGUE about what you want. Let her do the guessing for once. That makes her try to figure out what you mean, how you feel. Is this the first step in developing empathy?
On a scale of 1-10 for severity of NPD, say she is a 7. Is it be possible that with a healthier partner who enforces strong and consistent boundaries, who does not let any narcissistic games play out in secret but exposes everything, an NPD can be reigned in to such an extent that any damaging behavior is limited and that NPD person could manifest at a level 6? In other words, can your healthier behavior influence her to act less NPD? I think it can. That might be something to run past your counselor.