I have a client that has a pretty old website and they make use of a <h1> tag with keyword text hidden behind an image. So that when a visitor goes to the page, they see the image instead of the <h1> tag. If you turn off images or view the google text only cache, then the <h1> tag is there. Is this considered bad SEO practice now?

I depends on what information is in the image. If the image contains the same message as the h1 tag, it must be considered okey.

Even such prominint sites as csszengarden (http://www.csszengarden.com) uses this technique.

But as always you can't be sure of what may or may not happen in the future, regarding filters and such.

I would advice not to use this teqnique unless it is absolutely inevitable.