There is new version of Captcha in CVS, it's the first release candidate of with the new Captcha API.
Here is some improvements:

• Full FAPI compliance - no more dirty hook_form_alter magics.
• Easier API
• No code duplication - DRY compliance ;)
• Fixed problems with form_set_error

* Textimage (as any other module using Captcha API) is still INCOMPATIBLE with this version of the API *

It needs more testing and some improvements before the release, but if you are having problems with the 5.1 version it's worth to try.
After new Captcha be considered stable, Textimage will be updated too.

I'm planning some improvements in the documentations before the release too.