I think that the largest piece of evidence that might help to persuade that Quixote is not insane is that he sincerely believes in his ideals. Quixote represents a force of reality that seeks to transform the world into what should be as opposed to what is. For Quixote, he recognizes that this can only happen with an embodiment of life that represents the ideal. In his case, this takes the form of chivalry and the belief of living life in accordance to these ideals. Quixote is conscious of this, and this is what might help to make him not appear insane.
God knows whether Dulcinea exists on earth or not. I contemplate her in her ideal.
For Quixote, the appropriation of the world in accordance to ideals that exist outside of it is what constitutes his state of being in the world. The understanding that this ideal form of the world is different from it is what makes him aware of the gulf between ideals and the real world. This consciousness and awareness is what helps to make the argument that Quixote is not insane, but rather zealously idealistic.
In chapter 5, and in response to Sancho Panza questioning his re-creation of self, don Quixote replies, "I know who I am...and who I may be, if I choose." This line is the section header as well, illustrating the cognition of his free will to become who he would like, fully realizing that it must be a change since he could choose to be someone else as well.
An insane person may have denied the agency of becoming any person since they have less cognition of self-control over their minds. This statement by Don Quixote shows much awareness of his state of mind.