Distinguishing between uppercase and lowercase letters in the "move-to-front" method
Though for us, human beings, m and M are the same, for a computer these are two distinct symbols that have no relation whatsoever.

The answer actually depends on the application: 


If your application is not case-sensitive, this separation does not matter, and the encoding is correct.
If the application is case-sensitive there must be a distinction between lower case and upper case. 


It seems to me that the encoding is more efficient as the number of symbols is smaller, thus maybe it is better to encode upper and lower case as an additional bit rather than having the list to contain 26x2 symbols, but this depends on the distribution of the text you are encoding.