There are 10 hanging lanterns throughout this area that you must destroy to beat the Over the Cuckoo's Nest Challenge. These are shown in the screenshots below and their approximate locations are marked with red dots on the annotated level map.
NOTE: The separate Baba Yaga Collectibles Guide includes a few additional details about beating this challenge after completing the level.
The first 4 lanterns can be spotted from the quarry where you fought the wolves. Naturally you won't be able to shoot them during the first visit, when Lara is hallucinating. Look for them the second time you pass through, before climbing up to the ROPE WORKS PUZZLE.
The first 2 lanterns (1/10 and 2/10) are hanging high above the east side of the pit.
The next 2 lanterns (3/10 and 4/10) are off to the west. One is hanging beneath a stone archway. The fourth is just above and to the right of the third.
If you don't notice the first four lanterns on your way to the ROPE WORKS PUZZLE, you can also shoot them before boarding the gondola. Here, Lara is standing on the platform with the lever that calls the gondola. The first 2 lanterns (1/10 and 2/10) are hanging near the eastern end of the gondola cable.
The next 2 lanterns (3/10 and 4/10) can also be seen off to the west of this same ledge. One is hanging beneath a stone archway. The fourth is just above and to the right of the third. You can also shoot them from the moving gondola.
The remaining 6 lanterns can all be shot down while riding the gondola, but the last 3 can also be targeted once the gondola comes to a stop, so concentrate on the middle ones for now.
Also note that if you jump off the gondola and die before reaching the end of the ride, you'll unlock the Henny Penny Achievement. The game should then reload at the previous checkpoint, and you'll have another chance to take the ride and shoot the lanterns.
As the gondola takes off, moving to the west, move to the front for a better view. After passing through the archway where the third and fourth lanterns were hanging, there are 3 more lanterns almost directly ahead.
Concentrate on shooting the lantern (5/10) directly ahead under the stone arch, since you can only target it from this side.
Next, turn left and shoot the lantern (6/10) hanging under another stone archway off to the south.
Then turn right and shoot the lantern (7/10) in the alcove to the north.
If you have time, shoot the next 2 lanterns as you pass them. One lantern (8/10) is on the left, and the gondola passes very close to it.
The next lantern (9/10) is also on the left, just below the water wheel. Again, don't worry if you miss any of the last three lanterns. You'll have another chance momentarily.
The final lantern (10/10) is suspended below the platform where the gondola stops at the end of its run. You can shoot it as you approach, as shown above.
Or, when the gondola stops, jump off and head up the ramp to the right. Then turn around and shoot lantern #10 through the gap in the walkway.
Lantern #8 can also be targeted from the back of the gondola after it has stopped.
If you stand on the edge of the gondola with the waterfall on your right, you can spot lantern #9 by looking down over the edge.
NOTE: After defeating the witch, you'll have an opportunity to ride the gondola back to the east, unlocking the Why the Chicken Crossed the Vale Achievement in the process. You can then shoot down any lanterns you may have missed or ride the gondola again if necessary.
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