Yup. I think there was a demand (of better language), but supplying necessary tool chain in Lisp required too much resources. In PlayStation2 era, NaughtyDog got advantage from their custom compiler, that's I heard in their GDC talk. But not everybody could afford that resources. I used Scheme in a part of toolchain in the production but never managed to push the code in the actual game shipped.
I am still trying to use Lisp for these domains. A small piece of Scheme code is running on the server side of one of the metaverse applications currently doing beta.
Naughty Dog used Allegro Common Lisp for their development environment - to implement some kind of Scheme dialect for the Playstation II. Then they got bought by Sony and for the Playstation III they used C++. As I understand they wanted to share code and technology with other parts of Sony working on games - and those were not using Lisp, but C++, like most of the industry. From reading some of their latest presentations I get the impression that this did not work out the way they had thought. So Naughty Dog is back using Lisp, this time using Scheme as part of the toolchain.
Xach recently wrote about the use of Lisp in Games:
But there is more, I remember for example that there is a relatively large online game that uses Common Lisp: neuroarena.com - a tutorial video is at http://www.youtube.com/watch?v=XFzP6Shxbbs .
I am still trying to use Lisp for these domains. A small piece of Scheme code is running on the server side of one of the metaverse applications currently doing beta.