Hi Kirk,
our group reads the official rules concernig fire the same way as you do.
But we are also of the opinion that these rules seem to be a bit "overpowered".

Our houserule is that the "extuingish fire" action marker may be played "in advance" when there is no active fire on board. To indicate that a number of crewmen are already standing by at key points in the ship to immediately extinguish an emerging fire.
If you have played it in advance, an emerging fire is extuingished at the end of the next round and therefore only causes one permanent damage.