The bad news is that a lot of important details were left out. For example, the study by Kali Trzesniewski et al. looked at changes in narcissism on only ONE campus (UC Davis, which they compared to 1980s data from UC Berkeley). Our analysis (soon to be published in the Journal of Personality) found increases in narcissistic traits in data from TWENTY-SEVEN campuses across the nation. So we need to modify our conclusion only slightly, to "American college students are increasingly narcissistic, except at UC Davis."
So why aren't they more narcissistic at UC Davis? In 1996, California passed Proposition 209, which radically changed admissions policies at the UC campuses. The enrollment of Asian-American students at the UCs nearly doubled, from 25 percent in the 1980s to 45 percent now. Nationwide only 8 percent of college students are Asian-American. Asian culture discourages narcissism, so it makes sense that this campus wouldn't show the same change as the rest of the country. Even apart from the ethnic changes, the shift in admissions policies created a different campus climate that might have suppressed narcissism even among non-Asian students.
The other people in the article appear to be stating their opinion rather than providing any data. Though I'm a big fan of Jeffrey Jensen Arnett's book Emerging Adulthood, I can't figure out why he would question the validity of the Narcissistic Personality Inventory. His opinion is not supported by the hundreds of scientific articles showing that the NPI predicts all kinds of narcissistic behavior, from liking to gaze at yourself in the mirror to hoarding resources to lashing out with aggression when insulted. Even if some of the test items “sound like pretty normal personality features” to Arnett, it doesn’t change the fact that the NPI predicts an array of negative outcomes.
And when he and the Yale prof talk about older people having warped perceptions of younger people, I agree. That's why my studies always look at what young people say about themselves and not what older people say about them. Generation Me increasingly says that they think they're special and they like to seek attention -- some older people might agree, and some might not, but it's not their opinion that matters.