I recently was evaluating a corporate web site that had image text as a title for a list of links. They had the image in the <p> element so Jaws would not identify it as a heading. I think we need a sufficient technique in 1.3.1 or an example added to H42 that says something like:
"Using heading markup to identify image text that is acting as a heading."
An example would look something like this.
<html xmlns="http://www.w3.org/1999/xhtml">
<head>
<title>Cities of interest</title>
</head>
<body>
<h1><img src="../images/cities_of_interest.jpg" alt="cities of interest" width="91" height="95"/></h1>
<ul>
<li>Barcelona</li>
<li>New York</li>
<li>Paris</li>
</ul>
</body>
</html>
We have included your example and have created the new failure titled, "F64: Failure of SC 1.3.1 due to using changes in text presentation to convey information without using the appropriate markup or text."