It does do deflection damage, and yes the Tiger is better AI. Although I would say versus USF mostly since the IS2 is normally shooting at 4 men squads while the Tiger is shooting at 5 and 6 men squads.
The big weakness as you point out of the heavy's is they have low DPS, but the IS-2's 375 frontal armor and high speed means it can get in and out of sticky situations faster than a Tiger or KT can.
Tiger has blitzkrieg and can have doctrinal smoke canisters.
King Tiger has combat blitz.
They can get out of sticky situations just as easily as an IS-2.