I agree that’s a mistake in the image. I think you are correct that they mean x^{<1>} there. I will file a bug about that.
Although maybe you could argue they are being a bit careless there and eliding the meaning of the index versus the “one hot” representation of the index. The x^{} values are one hot vectors. The argument to ix_to_char is not a one hot vector, but a scalar index value.
About xt inside ix_to_char, I understood that xt denotes the cell associated with the character. Yes, the notation is quite confusing, but your comments helped me a lot. Thank you so much.