Timelines are formed at the point of disembarkment, not the point of entry.
So, when Jack left the first portal, it split the timelines into one where Aku was successful (i.e. no Jack) and one where Ashi was born. When Jack travels back to the past, it creates a third timeline. The one where Ashi was born is now without a Jack as well.
Timeline 1: No Jack since the first battle. Aku dominates
Timeline 2: Jack exits, exists briefly, Ashi is born, and Jack leaves.
Timeline 3: Jack and Ashi kill Aku.
Timeline1: Aku victory
Timeline 2: No victory. As this timeline only existed to form Timeline 1 and 3, it slowly fades. By the time it finally fades, Ashi fades as well.
Timeline 3: Jack (and the Gods) victory.