Your instructor has committed serious academic misconduct several times: if it is your words or your work being published, you should be one of the authors and your permission is required for publication. It's also not clear from your post whether the same material was published multiple times, which would also leave you vulnerable to accusations of self-plagiarism.
It sounds, at least, like you are no longer working with this instructor, which is a good thing. You should always look to separate yourself from seriously unethical people, lest you be tainted by association or involvement in their crimes.
Now you are faced with a problem of cleaning up a toxic mess, because your instructor has also lied to you about this "not being a problem" for you. There are three different aspects of the cleanup that I can see:
What should you do in your thesis? I think that your supervisor's suggestion here is good: put in a footnote at the beginning that explains where else the various pieces of the chapter have been published (both with and without you as an author), and note that due to misconduct on the part of the other author, you were not listed as an author. Note that I am assuming the instructor is not required to sign off: if they are, this may be a problem.
What should be done about the papers? Once you are safely graduated and are secure from retribution in another position, you can contact the publishers and request to have the record corrected. The note, signed off in your thesis by your supervisor, will be useful here. If material was inappropriately reused in multiple publications, you might instead ask for some of the publications to be retracted. Don't be surprised, however, if the publishers fail to take action, as many publishers are not very responsive when asked to correct the record.
What should be done about your instructor? It is very difficult for a student to accuse their instructor of misconduct. Fortunately, it sounds like you have informed a responsible senior individual (the tenured supervisor), and it would now be appropriate for you to pass the responsibility of deciding how to proceed to that person. Unfortunately, it sounds like this person may not actually take any action, so you may wish (again, once you are away and secure from retribution) to contact people who actually have authority over the instructor and may be willing to act.
Finally, be prepared to simply walk away if you need to: fortunately, this is happening only at the Masters' stage, and so all of this mess can likely be rendered irrelevant by your future work as long as you take precautions (like the note in your thesis) to avoid it coming back to bite you.