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This is incorrect, Itachi said Madara was the first. However, that's not true since there were Indra incarnates before him. Also, Obito awoke it before Shisui and it is implied Fukgaku had it. It's power(Mangekyou Sharingan's) was also recorded on the stone tablet, which is why Sasuke knew it...

They were just too powerful even with a 3T Sharingan. The potential is near limitless which is why they were kept in the village. The more the get exposed to battle the stronger the clan becomes. Even in their weakened state they threatened the existence of the village(Tobirama's agenda) itself...