[Chaos]

Make it so where the Narcus only stores half of the damage dealt to you instead of the full damage. I think the effect is more of the problem with it, not so much the scaling.

This sounds like the better solution. Capping it at 200 just means that they have to swing it a few more times.

Magic Damage should be applied to small numbers in on-hit effects for being so hard to be resisted normally compared to Physical Damage...

This sounds like a 'i don't build against it, therefore it's broken' argument. Between RES, Magical Damage Reduction and Elemental Resistance, you shouldn't have a problem resisting magical damage.