Hi Nicks. I would follow the boss' directive but do it in my own way, and if she "catches" me doing it, I would give her the big innocent eyes and say I thought that was what the organization wants us to do, for example:

I would not nag employees, but I would catch them doing something right: "John, I appreciate your coming in on time. You're always ready to work."

I wouldn't nit-pick, but would redirect employees as necessary: "Sue, the Boss likes us to do Part B before Part A. The end result is we do get ABC done correctly" (or whatever the case may be. I find employees have difficulty following instructions that seem counter-intuitive; unfortunately where I work just about everything is counter-intuitive).

Employees like to feel appreciated. If you can arrange it so that the Boss knows you have genuine praise for their accomplishments, good. An email that copies both the employee and the Boss about a job well done is something both the Boss and the employee will find useful.

Now on to your boss' sadism. I work for someone similar although mine does use offensive language, nasty remarks, and is quite pointed in abusing people specifically, using things she has learned about them to upset them and basically torture them to tears. If the boss is using tasks related to work, try interrupting her and gently force her to stay on topic: "So what you are saying is you don't like this done on the pink form, but you want it on the blue? Ok, I will write that down and from now on use only the blue".

If she veers off into anything non-work related, gently but firmly cut her off at the knees. My boss tried to 'make me cry' by making me seem like the weirdo because I brought something to her. She started to go on and on about it until I interrupted her and pointed out that my concern was a legitimate one in keeping with the company's expressed values and that I should be able to bring it to her as my boss. I didn't get visibly upset. (I realized she not only wasn't going to do anything but use what I had brought to her as a club over my head so I let it drop at that).

That said, I don't bring anything to my boss unless I absolutely have to. She's the kind of person who looks for what she perceives to be weaknesses in people to use against them at a later date. If she senses people are shutting her out, she goads people until she gets them to the point of tears. I no longer fall for that crud. I either agree with her, shrug my shoulders, say "yeah, I have no answer for that" or whatever is the quickest way to head her off at the pass. She watches faces to see what effect she is having. I keep my expression level (frankly if my expression revealed how I feel about her, I would look like I smelled something heinous all the time.)

As far as being written up for stupid things, my boss has started a paper trail on me, but what she doesn't realize is that what she has written makes no sense. If for example, the boss were to say "Betty isn't nice to customers" any higher management worth its salt should be asking "HOW is Betty not nice to customers" and to the supervisor "and what are YOU doing to re-train Betty??)

Sorry for such a long answer. In conclusion I'd say do what the boss directs within the guidelines and values of your company and within your own guidelines of how to treat people. And never trust a person like her to be anything other than the sadistic snake she is, if she is indeed a sadistic snake.