It's been a while since I've played L5R. I don't understand what the book means by Wound Rank. It could mean things like Healthy, Nicked, etc. or it could be individual points of damage. Which does it mean? If it is the former, does the Disadvantage Permanent Injury fill up the Healthy, or is Healthy not a wound rank considering it's the state you exist in before you're wounded?
In L5R, like so many other mechanics, Wound Rank does indeed refer to the various categories of wound, such as Healthy, Nicked etc. The individual points of damage are usually referred to as Wound Points.
This mirrors the mechanics used for Glory Points/Ranks and Honor Points/Ranks, and even Shadowlands Points/Ranks. A number of Wound or Damage points equal to or greater than a Wound Rank means you suffer the effects of that Rank.
About the Permanent Injury, yes, it fills up the Healthy Wound Rank. A character is considered to be at whatever Wound Rank is not completely filled, so normally, up until Wound Points equal to the Healthy Rank, he would be Healthy. This character is never Healthy.
(Additional info) There is a definition for wounds on p82 of the 4e rulebook, and p166 of the 3e rulebook.
3e actually talks about Wound levels rather than Wound Ranks, but then, so does Permanent Wound (p117). 4e distinguishes between points of damage and Wound Ranks, and Permanent Wound fills in your first Wound Rank (p161). Earlier editions may have used less exact terminology.
A Wound is an individual point of damage. A Wound Rank is an overall level of Wounds inflicted. If you read the the section on Wounds, you will see that the Healthy Wound Rank is not filled until you take Earthx5 Wounds. Permanent Wound causes your Healthy Wound Rank to become permanently filled.
From L5R 4th Edition Core, pg 82, Wounds
Individual characters have Wound Ranks that measure the amount of damage that they can sustain before it begins to impair their ability to take actions and eventually incapacitates or kills them. The Wounds inflicted by an attack fill up these Wound Ranks in order, with each Rank containing a maximum number of Wounds determined by the character's Earth Ring.
From L5R 4th Edition Core, pg 161, Permanent Wound
Your first Wound Rank is always considered full.
Healthy is the first Wound Rank listed under Wounds. As the portion I highlighted shows, the Wound Ranks are filled up in order. Since one cannot use Wounds to "fill up" a Wound Rank that is already full, your first Wound must go into the Nicked Wound Rank.
Were you to use the interpretation that "considered" means the Wound Rank can still be filled, this Disadvantage would have literally no penalty. It is not until Wounds have been placed within the Nicked Wound Rank that you begin taking the +3 TN penalty associated with it. In addition, had they intended the Disadvantage to give a "virtual" penalty they would have used wording more like that found on page 268 for the Kiho Stain Upon the Soul.
It is very important to remember that the point gains for Disadvantages are not equivalent to the point costs for Advantages or even Rings or Skills. The Disadvantage Weakness provides one of the easiest places to illustrate this. It costs you 4 times the new value to raise Traits and the default level of traits is 2. Even if we use the most generous interpretation of the disadvantage (in which you literally reduce your Trait by 1 which would make the phrasing extremely odd) you still only gain 6XP for something that will cost you 8XP to regain. Likewise, Cursed by the Realm grants you 4 points, but Touched by the Realm costs you 5.