Yes, you deal two fire damage to a number of non-hero targets equal to the number of bounties in play. Similarly, the Masadah deals irreducible damage to one target equal to the number of bounties in play.
It sounds like you may have got pretty unlucky in your battle - Legacy, Jim, and Expatriette sounds like a pretty solid combo of heroes against Akash'Bhuta (who is female, btw ;)). Chrono Ranger can do some very nice damage with even one damage buff because pretty much all his one-shots let you plink something for one damage (and the only soak Akash'Bhuta ever gets is via her Mountainous Carapaces, in which case you attack them, not her), so he can destroy stuff pretty quickly. Expatriette is a similar story, naturally, what with all her possible damage options through her guns. Legacy can spend the game doing his usual thing of buffing everyone and playing whatever else seems useful at the time, naturally :).
When fighting Akash'Bhuta, the thing to do is attack any limbs which come out. This is the main way of dealing her damage since it's much faster to blast away at the limbs and have her hit herself as a result. With Chrono Ranger in the group, you have a bonus in that if you play "By Any Means" on her, she takes +1 damage from everything. Meaning that whenever she hits herself for your detroying one of her limbs, she hits herself for an extra point of damage. If you put the Ultimate Target on her too, you get to use a power the first time she deals damage each turn (I don't think the target matters but you may want to check whether it specifies that she has to hit a hero target or not…I don't think it does, though). So with just those two bounties on her you could nuke one of her limbs, at which point she hits herself for +1 damage, which means you then get to use a power and shoot another one of her limbs (or whatever else looks good ;)). In general, getting out as many bounties as possible is good so that you can boost the damage of the Masadah and/or Danny Boy (though I don't think I've ever used the latter). The Whole Gang is a useful bounty to use in a game with lots of targets since you can whittle down two targets at once (one of which has that bounty on it), then destroy the bountied one which will let you insta-kill the other one automatically (as long as it's at 4hp or below, of course). The Compound Bow is a very very nice weapon too, dealing some pretty amazing damage once you have a buff or two (since even if you only have a +1 to damage, the Bow will then be dealing 2+2 damage).
The environment could be annoying - as has been mentioned, the Tomb has quite a lot of targets so Akash'Bhuta is bound to get plenty of free card plays. With all the stuff getting blown up all over the place, Anubis is likely to be a bit of a pain too, once he comes out. However, both Chrono Ranger and Expatriette have means of taking out environment cards (via Temporal Grenades and RPG Launchers, respectively), and Jim even has the means to search for his (via Displaced Armoury) if need be.
I play all my games with just three heroes (there are two of us playing, so one of us plays two heroes), and we never find Akash'Bhuta to be massively difficult. She can certainly be annoying (Rejuvenating Entropy and erm…the one that destroys ongoings can both be a pain in the arse), but it's not very often that she kills us, hence why I was thinking that you probably just had a bad deal that game.
One of my favourite set-ups is Legacy, Ra, and anyone versus Akash'Bhuta in Insula Primalis, just because it can be so much fun - the ideal situation there is for the volcano to come out when Ra has Flesh of the Sun God in play (or can put it into play before the volcano actually goes off). Then you just sit back and laugh as all the limbs get blown up while you ignore the volcano completely - it does mean that Ra has to use his Power phase on Flesh of the Sun God for the remainder of the game (unless you have a Flame Spike to let you use something else as well), but it's Ra…he can nuke stuff without needing to use a power ;).