The interpreter we wrote in that actually wasn't written for Emacs, it was written for TECO. It was our text editor, and was an extremely ugly programming language, as ugly as could possibly be.
TECO was so ugly because the command language and the programming language were the same thing: You programmed TECO by entering the same commands you used to do editing with it, and those commands were both terse and made heavy use of control characters.
On the other hand, it was also a high-level programming language with native support for strings and regular expressions and, of course, the editor qualified as an interactive interpreter. TECO-the-language actually got reasonably popular within the communities that used it as an editor, especially the ones that had the more advanced TECO variants with all the bells and whistles.
Once I stopped punishing Symbolics, I had to figure out what to do next. I had to make a free operating system, that was clear — the only way that people could work together and share was with a free operating system.
At first, I thought of making a Lisp-based system, but I realized that wouldn't be a good idea technically. To have something like the Lisp machine system, you needed special purpose microcode. That's what made it possible to run programs as fast as other computers would run their programs and still get the benefit of typechecking. Without that, you would be reduced to something like the Lisp compilers for other machines. The programs would be faster, but unstable. Now that's okay if you're running one program on a timesharing system — if one program crashes, that's not a disaster, that's something your program occasionally does. But that didn't make it good for writing the operating system in, so I rejected the idea of making a system like the Lisp machine.
Is this something that is still relevant to modern attempts at making a Lisp operating system?
No. Actually, the reverse of that was one of the reasons why the Lisp Machines (http://en.wikipedia.org/wiki/Lisp_machine) ultimately failed (among others): commodity hardware could run Lisp as fast or faster than custom hardware.
Nowadays, the hardware doesn't limit the creation of a Lisp OS, but many other things do. 1) Getting people that want to do the work (http://linuxfinances.info/info/lisposes.html) 2) The fact that you can run perfectly good Lisp implementations on top of general purpose OSs significantly decreases the need for a Lisp OS. 3) Lisp isn't as popular as it once was (or should be :)
No, compilers can do a good job at translating Lisp into something that commodity hardware likes. It would be really hard to beat the performance of x86 running Lisp with custom hardware running Lisp cost effectively.
For proof, see the source code here: http://pdp-10.trailing-edge.com/mit_emacs_170_teco_1220/inde...
It is certainly heavily annotated for good reason.