Not sure if this is the problem but it looks like you are adding the decal normal to the regular normal, and then using the blend normal node. So you’re essentially blending the normals twice.
That is likely causing some wrongness in the normals, but I don’t think it’s enough to cause all of what you’re seeing there.
There should be no need to add the normals before the blend node.
Also try toggling “tangent space normals” in the decal material settings.
I’m guessing the normal vectors will be wrong if you inspect the normal buffer again. It can be helpful to put an object like a sphere or cylinder next to the surface you are inspecting so you can compare the normals to a real surface facing the same direction.