One way would be to have a String type that can be converted from and to Lua strings, which does handle UTF-8/Unicode without all the problems. It doesn't seem to be the most elegant solution, but if there is no better one...
I think we should just make a love.gettext module with appropriate function, and if you want to use u "Hello", then you can just localize love.gettext.getString (or whatever it will be called) function.
I just got that to compile (if my experience is typical, anyone who can compile the main branch should be able to handle the modified version). What kind of tests should I be running on it? I got Hello World with gratuitous unicode added to work properly, but I assume that stuff like framerate and memory consumption are potential concerns. (Just, generically. Imagine I am utterly unqualified to make any statements about this, because I am.)
I'm running Snow Leopard on a new MacBook Pro, and there's an outside chance I can bash out binaries for other platforms if anyone else is curious, but has even more trouble compiling than I did. (I make no guarantees about stuff like... compatibility with anything other than my specific architectures, because I'm completely new at anything more advanced than compile-make-make.)