Regarding Chewie's reaction, I say when he is dealt damage he returns the favor times 2 (2 for 1, 4 for 2, etc.), my friend says it doubles his combat icons. There are other cards that specifically address combat icons and that is not what this card says. Who is right?

You are right.

EDIT: But note that if the damage kills him, he is discarded before he can respond with his reaction.

Heart of the wookie is quite a good upgrade on Chewie. Also some interesting interactions, chewie doesn't have to be in an engagement he just has to take the damage during an engagement. Lets say your opponent declares an attack with a single 3 hit point character. In the action window before defenders are declared, you can then play let the wookie win deal a damage to your opponent's character, and 1 to chewie, chewie will react and do another 2 to that character if you would like. Then you can declare defenders even though his only attacker is dead, like say a guy with white tactics icons. He can't play to edge, you auto win and focus down someone. Lots of really neat interactions with chewie out there.

He can't play to edge, you auto win...

Fine point, but you don't actually auto win as defender if there are no attacking units. You do win ties so most of the time you won't need to play any edge cards to win in this situation, but there are weird corner cases involving Join Me or Endor Emperor taking control of Rusaan Colonists that could force you to play something.