This is probably my last update on this. I have learned that Kindlegen 1.1 handles the masthead images properly as well as descriptions in the "Articles List" view. Why these features vanished with Kindlegen 1.2 I don't know but if you use Kindlegen 1.1 instead you can have them back and I recommend that.
Amazon doesn't distribute Kindlegen 1.1 any more but you can get it here
http://www.megaupload.com/?d=IJTAIWYR (I trust this doesn't violate MobileRead's prohibition on uploading apps since it's a link to an external site). The URL is also in the Instructions file. You can also use Kindlegen 1.2 but you won't get masthead images or descriptions in the "Articles List" view.
As before, if you are updating from an earlier Calibre-Kindle, be sure to replace ALL the files in the folder. My thanks to veezh, tylau0, oneillpt and dwanthny for taking the time to help sort out the issues with the earlier versions--I think we have something stable now.