I don't think this particular hadith has been quoted in context of Muhammad's narcissism. Here have a look.
'AbdAllah ibn ‘Abbas radiyAllahu 'anhu narrates that some people from the
Quraysh once came to my auntie – Safiya bint ‘Abdul Muttalib – and showed
pride at their lineage.
Safiya radiyAllahu 'anha refuted them by saying how can your lineage be the best
when we are beloved to Allah, that is, only the lineage of the Prophet sallAllahu
'alaihi wasallam can be the best, not yours. They were angered upon hearing this
and said, the lineage of the Prophet sallAllahu 'alaihi wasallam is like a branch of
dates growing from rubbish. Safiya radiyAllahu 'anha told the Prophet sallAllahu
'alaihi wasallam of the incident upon which the Prophet sallAllahu 'alaihi
wasallam became very angered and ordered Bilal radiyAllahu 'anhu to gather the
people. Thereafter, the Prophet sallAllahu 'alaihi wasallam ascended the
pulpit and asked them:
Oh people, Who am I? The messenger of Allah, they replied. He
then asked them to talk about his lineage. They replied by saying
you are the grandson of ‘Abdul Muttalib and the son of 'AbdAllah.
The Prophet sallAllahu 'alaihi wasallam then said: What will
become of that nation that demeans my lineage. They should know
that I am greater than them in terms of lineage.
Masalik al-Hunafa with reference to Musnad Bazzar, p.132
لا إله إلا سبب واللطف هو صاحب الرسول
There's no God but Reason and humaneness is His prophet