So, Kess' last feat reads: When you defeat a monster, you may heal a card (O or an ally).
That seems like a downgrade?
The fixes that jump out at me would be to swap "card" and "ally" or to change "or" to an "and".
Am I missing something or is this not quite correct as written?
It's correct. Healing a card is random - as specified in the rulebook - so if you have the feat you get to refine the targeting somewhat. It becomes (effectively)...
"Shuffle a random card from your discard pile into your deck OR INSTEAD shuffle a random ally from your discard pile into your deck."
If you've acquired and thrown away some unhelpful cards, or discarded some armors and items to damage or powers that you don't want as much as an ally, you can choose to only keep healing your Allies back. Since Kess gets more value from playing Allies than most characters, it makes sense she'd want to 'target' what she's healing better so she doesn't accidentally keep filling her deck with potentially weaker blessings, armors or even acquired weapons and the like.
If a game goes for long enough, that power feat may ensure that most of her deck just becomes (and remains) allies, which is great since they assist her checks so well as well as provide explorations.
The feat to change the healed card from any card to an ally is definitely an upgrade.
Kess always wants to have allies in her hand, the same way that RotRL Sajan wanted blessings. She needs allies for her combat checks, so unless/until she has a method of healing them, she is more likely to hold them for her combat and not use any for their discard powers except in extremis. The base healing power reduces this somewhat, but the random nature of the heal doesn't guarantee that she'll heal one of those all-important [to her] allies unless there are only allies in her discard pile. Once she takes the feat to specifically heal allies, she is much more likely to use allies for their discard powers because she knows that she can get them back.
D'oh! Yewstance in like a ninja! Well, maybe not like a ninja since I took so long composing and re-composing my response.