Healing only cures sick villagers (changing "sick" to "healthy" on the detail screen).

If you have "healthy" villagers with a low health bar, they will gain it back over time. You can also force them to eat (drop them on the food bin), and that will slowly raise their health, too (you'll get the message "your villager feels better after eating").

Just be warned that this isn't like picking up power-ups in a video game and instantly gaining lots of health, though -- you probably won't notice an increase in their health for a while.

[I'm on a Mac, so I can't help with the mushroom bug.]