Hello,
This doesn’t really have anything to do with the update because that function has not been modified, nor the template-tags file for that matter.
That H1 tag to which you refer is meant for screen readers, and as far as I know (although I`m not an expert in SEO), accesibility is gaining more weight with Google.
Anyway, if you want to change it you could build a child theme. That navigation function is pluggable so you can easily overwrite it from your child theme. Create a functions.php file in your child theme and add this function in it: http://pastebin.com/56TY11FD. It is already modified to use the h3 tag as you said. Now you don’t have to worry about updates.
Vlad