When is breaking character the right thing to do

I think one needs to take a utilitarian approach — what will bring the greater good for the greater number of those assembled to play. This covers the jerk chaot and narcissistic thespian cases nicely with reasons for breaking (or retiring) the character. It also stands against the breaking character just to follow along with what the GM alone wants.

For me, keeping character usually led to PCs leaving the story to do their own thing off-stage, while ciphers prospered.