I agree with you that what they do seems to us to be insane. I am not much for moral relativism and this is a good example why.
To a person indoctrinated from birth with the idea that killing the enemies of Islam, and that can be darn near anyone including Muslims, and that the only true way to Heaven is to martyr oneself for the cause, what they do makes perfect sense for them. Die for Islam by killing others and have all the earthly delights in Heaven.
The only downside is they are being deceived but they don't know that. Those who are living well and who are teaching the others this doctrine never martyr themselves, indicating they don't really buy it.
Islam is a perfect example of why moral relativism is wrong.