I have not played ESO so my knowledge of 2E stuff is very limited, but I did play a lot of Morrowind. Knowing what I know about Almalexia and the Ashlanders from that game:

1. The Ashlanders do not accept the Tribunal as legitimate gods. The Ashlanders still worship the Daedric “anticipations” (to borrow the Temple’s term) that came before, who are Azura, Boethia, and Mephala. So they do not view the Tribunal gods highly, and would view their claims of divinity to be fabrications.

2. Before becoming a living god, Almalexia was Nerevar’s wife (Nerevar being the historical 1E figure the player is a reincarnation of in Morrowind). Almalexia may not be a highly regarded figure among the Ashlanders, but her husband certainly Nerevar was. The Ashlanders believe that Almalexia, along with Sotha Sil and Vivec, murdered Nerevar with poison, and then started to claim they were gods. The Temple silences the betrayal narrative as heresy throughout most of Morrowind, but the Ashlanders exist outside of the Temple’s sphere of influence.

So since the Ashlanders see Almalexia as guilty of murdering her husband out of a lust for power, I assume this is where the “Mad Wife” idea comes into play (mad in this case interpreted to be insanity). At the very least, they know Almalexia was Nerevar’s wife, and they also know that she is claiming to be something they believe she is not, so that seems enough of a basis to call her “the Mad Wife” to me.