yes, lua could be a complete replacement of lite-c if you made wrapper for the engine sdk.
i would find it more interesting to embed lua into lite-c though like that tutorial on gamedev.net describes. that could be useful for many things. for example you could use it as a simple yet powerful system for ini files, for string processing, for making parts of your scripts modifiable,...
http://www.coniserver.net/ubbthreads/sho...e=0&fpart=2it could be used for scripting robots in an updated arena game.
you could make only the wanted functions and variables available in lua.
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What advantages does LUA have over Lite-C?
lua is a dynamic language. it's slower than lite-c but more high level. it supports object orientation, automatic memory management, its string functions are more powerful,...