Current 7.x-1.x-dev version does not treat "alt" and "title" translations.
While I do not have the skills to propose a solution for the problem in a standardized way, I just share my turning around code.

function taxonomy_image_field_formatter_view($entity_type, $entity, $field, $instance, $langcode, $items, $display)
$element = array();

switch ($display['type']) {
case 'taxonomy_image_term_reference_image':
foreach ($items as $delta => $item) {
// Display the term name when the term has just been created.
if ($item['tid'] == 'autocreate') {
$element[$delta] = array(
'#markup' => check_plain($item['name']),
);
}
else {
$term = $item['taxonomy_term'];

global $language;
$var = $item['tid'] ? taxonomy_term_load( $item['tid'] ) : '' ;
$term->name = <strong>i18n_taxonomy_term_name</strong>( $var, $language->language );

$alt = $title = $term->name;
etc...

i18n_taxonomy_term_name is from Internationalization Module.
Is the function parameter $langcode useless? I could not investigate it in details.