The staffing agency that placed me there is helping me find a new job but first I have to find a way to say "You are absolutely nuts and I have to quit before I end up just like you!!" I also have a feeling that as soon as I give my notice she will go ahead and fire me on the spot. I now understand why she has such a high turnover rate with her direct staff. Please help.
First off, you never, ever
say that. Don't even think it, even though it's the truth. You don't have to give reasons for anything in a resignation letter, but if you do feel the need, give something generic: "A new opportunity" or something like that. Make it about going to
something, not about getting away
If you do
decide to address the crazy in an exit interview, make it absolutely factual. Don't say anything that you can't prove (you are documenting everything, right?). Saying "my boss is a loon" makes you look unprofessional, no matter how true it is. Nutty boss could be gone in 6 months and you could find yourself reapplying to the same company -- you don't want to leave them with the impression that you are anything less than professional (advice also known as "don't burn any bridges.") Trashing your boss may be emotionally satisfying but it drags you down to her level and rarely (if ever) produces positive results.
Second, be prepared that she will fire you on the spot. Welcome that -- it's early freedom. Which means that no matter how painful this place is, don't give notice until you have something lined up, or have enough savings to tide you until you do.