I was around the AI Lab at the time (working for the EECS department sysop'ing their undergrad Lisp Machines and DEC-20), and the dream was to incarnate Lisp in hardware and surpass the slow, multi-user PDP-10's/DEC-20's in use at the time. Plus, the sheer temptation of running Lisp "all the way down" (well, not in microcode, though that was written in a Lispy assembler) was just too great to resist. Plus it was early in the workstation era (Sun, Apollo, etc) and people were hooked on the idea of personal graphics-based workstations.
Within a few years, though, desktop machines running optimized Lisp compilers were surpassing the raw performance of the Lisp Machines, though of course there was nothing like the whole system (Genera).
In the end, "worse is better", plus "AI winter" happened, which put the Symbolics/LMI/TI LispMs out of business.
But something real was lost--I don't think the world has ever seen a more powerful development environment.
One step forward, and four steps back...