This level is severely bugged.
The Sacred Reign Calastria Upper level has a major bug. After you collect the fire sword the are supposed to be dozens of small characters spawn in the village centre. However the dialogue just repeats flee while you can
over and over.
If this happens dashboard quit the game then restart and from main menu go to chapter select and select the level. This is the only fix, don't try and reload a save.
For the achievement you must kill every single plushie. The best attack is by using the LT on the fire sword for a special ranged attack.