I've noticed that my NRSP is fully taxed on my death. My spouse is the beneficary of my interest from that account, and my understanding is that if the Deceased’s Will names the Deceased’s Spouse or Common-law Partner as the beneficiary of their interest in the account, the investments will transfer to surviving Spouse or Common-law Partner on a tax deferred basis. I may have either misunderstood the treatment or missed a setting. Any help or guidance appreciated!

To apply the spousal rollover as you describe correctly, you must make sure you have selected "Spouse" as the beneficiary of your account where you edit the account properties. In that case, you should see something like "ACCOUNT NON-REGISTERED rolled over to spouse" in the warnings column of the year of your death. The account is not taxed in the TIME MACHINE, and the balance and its cost-basis continue on as owned by your spouse.  Otherwise, you will see this warning: "NON-REGISTERED ACCOUNT liquidated to Estate", indicating the account has been deemed disposed and taxed.

Even if the account is rolled over to the spouse,  probate still applies unless the account is also held jointly with your spouse. So even though there is no tax, there may be probate fees to pay (depending on your province). The warnings column also gives you that information like this: "To probate xxx,xxx.xx. Fees: x,xxx.xx". I think this may be why you are thinking the account is taxed when it isn't.

To avoid probate on the account, it needs to be a Joint account (both in real life and the TIME MACHINE). Then you need to consider CRA attribution rules on Joint accounts. Please read p. 30 of the MoneyReady App eBook for details on setting up Joint accounts.

I went back in and reviewed the data, the app is treating the account correctly - what was throwing me off is that I saw the "Taxable Income" Capital Gains column shoot up in the graph that year, but although it displayed as income it correctly only applied the probate fees. Reader error :)

No worries. There also might be some necessary selling from accounts to cover the probate fees on top of other usual expenses, leading to higher taxable income and taxes that year, possibly capital gains if the withdrawals are from non-registered accounts.