first of all make <ul> and </ul> tags at the begining and the end of the menu.
then as i noticed you have a loop which is repeating manu name, then a image with alt home, and second with alt links. as i think you chould do something like this:
<div id="menu">
<ul>
<!--{%menu_start=1%}-->
<li><a href="{%menu_href%}"><img alt="{%menu_display%}" src="web_images/centercap_HOME_small.jpg" width="100" height="90" /></a></li>
<!--{%menu_end=1%}-->
</ul>
</div>
<!-- end menu -->
but this will not show any words, it will display only 3 image, with alt home, links and contact.