I like the core concept — that Azula fakes her breakdown — but I'm not sure I buy that she would wait *eight* years to execute her last move. That's a long, long time for the Avatar and Firelord Zuko to build up their power bases, form alliances, and let the Fire Nation's royal court forget about crazy old Azula. Not to mention eight years where the war weary Earth Kingdom and Water Tribes have a chance to rebuild their forces. Even if Azula kills Aang, and that's assuming he's in the Fire Nation capital when she arrives there after swimming, what's she do for an encore? She's old news to the Fire Nation at large, popularly regarded as insane, and she's alienated all her allies. Her whole plan just strike me as... well, crazy.
I know the fic's stated intent is that Azula fakes her breakdown, but the fridge logic of waiting eight years implies that either Azula is stupid or she really *did* go crazy and now she's rationalizing her behavior.