h3 headers are probably always going to look bold. The only things which aren't quite correct is using 'TYPE' instead of 'type' in <style> tag, and the final ';' isn't required. I wouldn't expect that to break anything, but maybe it did somehow.
You can use Calibre's extra css option to accomplish this as well. Add this line to the extra css option during conversion:
h3.chap {font-size:1.5em; font-weight:bold; font-style:italic; page-break-before:always}
or
h3{font-size:1.5em; font-weight:bold; font-style:italic; page-break-before:always}
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