Yes, Lua seems like a nice language.
I am not sure if it isn't *too* small, though -- there are a couple of nice features it doesn't have in order to remain that small (while I am not an expert on Lua by any means, ObjectOrientation and Unicode come to mind).
Ever thought about Python? Embedding Python is a bit trickier than embedding Lua, but it is almost as fast and has a number of cool features of its own (like a support for running multiple interpreters).
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