If you place the image in the book in iBooks Author, you can place a textbox over the top, make sure it has no border, and type to your heart's content. Multiple textboxes, arrows and other shapes are all available.
I'm not sure about the exact meaning of 'embedded text.' If you create something in, say, Adobe Illustrator or Photoshop, where you have some images, draw in arrows to points of interest, and type in some text (e.g., "Press this button to start the machine." on an image of some machine, or "Here Be Dragons" on a map, or for marine biology "Dangerous end" on a shark), and then save it as a jpeg or png and place it in the book, I don't think there will be a problem. I have many such illustrations in my textbooks.
Note that this text is not able to be searched within iBooks, so if you want it to be findable, you'll need to try another method (e.g., put the terms in a textbox and hide them behind the image, or include them in the caption (which can be hidden).
It may be that trying to create a book (say, a generic ePub book) by using screenshots of the same book in iBooks Textbook format will cause all manner of grief, even though it seems to be almost the only way to get the fixed layout into a generic ePub. (Yes, you can use InDesign, but you don't know what reader the user will have, and whether it will support fixed format ePubs.)
I think that the 'prohibition' is actually concerned with making a book of all images of text, not with annotations within images. I'd go for it with your images, make sure that they carry within the image itself only a small part of the total text in the book, bear in mind it's not searchable, and I don't think anyone will object. If you look in the original "E.O. Wilson's Life on Earth," which was set up to showcase iBooks Textbooks on the iPad, you'll find text in several images and videos. Not much, but it is there, and in a way that makes sense. Nice biology text, too!
