User blog comment:Godisme/Everything But The Rain/@comment-5606268-20130227161448/@comment-393772-20130301020807

There's also the possibility that whatever it was got the jump on Isshin and injured him badly before he could react and, while whatever it was was distracted, Masaki killed it. Or, Masaki could have used Letzt Stil at some point and lost her powers before she met her demise at the hands of Grand Fisher.

There is A LOT of time between when Masaki and Isshin met and when Grand Fisher killed her. There are tons of different factors here that need to be considered before just saying it's a plot hole.