I don't think the western ruling elites actually think Putin is deranged and unstable, but that's the narrative they use to get public support.99% of the west including all western politicians seriously believe this. Putin is a deranged and unstable dictator except when it comes to nukes where he suddenly becomes a pacifist.
I don't see how this conflict doesn't end with a nuclear conflict between America and Russia. America is finished either way with Trumpists and the Democrats at each others throats. Maybe the establishment wants to go out in a nuclear fire rather than a long and bloody civil war?
I also think the calculated gamble by the west that Putin won't use nukes is not without ground. Putin is not mad and I really doubt his generals would actually follow orders to launch MAD, unless NATO launches nukes first, which I don't think the West has the conviction to do such. Life is still very good for most in the West, especially the ruling class, they're not prepared to die for the their ideology, not yet anyway.