A major, and non-negotiable, design goal of Lua is that it targets the ANSI C environment to maximise portability. ANSI C does not define Unicode support.
Incidentally, those two libraries might be unchanged because they're stable. The rate of change in the main lua implementation is quite measured.
Besides, Lua strings are interned raw byte-arrays (like atoms in Erlang or Lisp atoms), and can have \0s and other arbitrary binary data. While the standard string library is ignorant of Unicode, there's nothing preventing extra libraries from providing Unicode-aware string operations.
Lua also left out native regular expression support, because it would be larger than the rest of the standard libraries put together. You can just load LPEG if it matters.
For roughly half the people using Lua, library choices have already been decided by the big C++ (or whatever) project they're adding Lua to, so the question never arises in the first place. That's the primary use case for Lua. It's a really nice standalone language, too, but it was designed for embedding. Many of its strengths (such as the small, orthogonal, clean design) come from that focus, but so do some quirks. If you use Lua as a standalone language, you'll occasionally need to do some digging for libraries, particularly if you're not comfortable with C. The situation has been improving significantly over the last year or two, though.
I don't have a specific Unicode library recommendation, but would suggest checking the mailing list archives (http://lua-users.org/lists/lua-l/).
I haven't had a need for Unicode in Lua, but when I stumbled across some information about it, the essential story was that there is nothing stopping you from writing code to manipulate Unicode data (obviously), but there is also nothing built in to help you. All the built in string stuff is ANSI/ASCII/whatever.
However, the language Io (which often gets mentioned in the same breath as Lua, though it's quite different in some ways) has a stronger Unicode story: http://www.iolanguage.com/scm/io/docs/IoGuide.html#Unicode
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Also, Unicode is an odd thing to consider to be an essential part of a programming language. Usually when I hear it I think the person must think it's a part of accepting those that speak other languages. I would point out the fact that Ruby took much longer to get Unicode support than Python as a counterpoint to that, as Ruby's creator, Matz, is Japanese.
It really depends on what the language is used for. Web-facing applications are, in general, going to received unicode input, so for them it matters. But for an embedded programmer, for example, it might be utterly irrelevant.
Horses for courses, really. It just so happens that Lua has other properties that are very attractive to web apps too, which the presentation outlined.
-- and yes, still alive and commenting :P
The fact that Ruby took so long to get real Unicode support is due to Japanese resisting Unicode in favor of their own encodings, EUC-JP and Shift JIS, just like Finnish used to cling to ISO-8859-1(5) for so long.
On this computer (OpenBSD/i386), icu has over 1 MB of libraries and a 15 MB data file. The whole Lua distribution fits in one 200k library. Bloating the core language with that seems impractical.
Imagine you need to go through a library every time your string includes or might include the letter "s" or "v". Basically you'd need to use this library for all your strings. But then you lose compatibility with 'normal' string type and need to be constantly aware of the difference. You might want to use some other library that doesn't support this Unicode library at all, etc. It quickly becomes a very painful world to live in.
As you might imagine, just having support for Unicode baked in the language is very nice. Defaulting to Unicode for all text is even better.
I can understand why Lua in particular doesn't come with Unicode support out of the box, being so small. My comment was written in response to the more general claim that Unicode support is a strange thing to consider essential in a programming language.
(According to http://www.bckelk.ukfsn.org/words/etaoin.html, s/ä and v/ö are comparable in frequency.)
All the language core needs for Unicode is reasonable support for tagging string literals (i.e., U"blah") and a binary-safe string type. It's best if there's either a standard or de facto community standard library for doing Unicode string ops, but it doesn't need core support anymore than the Linux kernel needs to know about parsing HTTP.
At the very least, there should be a first-class type that maps 1-to-1 with a Unicode CodePoint. Then there should be easy ways to do common operations on strings in terms of CodePoints. (Like string comparison, substring matching, concatenation.) Furthermore, the encodings should be handled in a transparent way.
If the goal is to keep Lua to a 200k core, then there should be a mechanism to add such functionality as if it's built in.
EDIT: "transparent" meaning, it looks like core functionality.
There is. See "metatables" - the behavior of tables (Lua dicts) and userdata (handles to C pointers, or raw C pointers) is intentionally left minimal but extensible, so that new first-class ("transparent") types can be added.
For example, Lua doesn't have full regexp support* , but there's LPEG (http://www.inf.puc-rio.br/~roberto/lpeg/lpeg.html), a library that adds a PEG-based matching/parsing engine (which is a superset of REs). It's no less usable for being in a library rather than the core.
* Though what it does have (http://www.lua.org/manual/5.1/manual.html#5.4) if often good enough - the main thing missing is groups, e.g. "a+(ab|bc)?d".
Moreover, I wasn't searching for the best example -- merely using something I have personal experience of.
ICU4Lua hasn't been touched since April 2009, and is at 0.2B. [http://luaforge.net/projects/icu-lua/]
That sort of status just doesn't inspire confidence in a language. I understand you can use it for game programming, or that you can write your own libraries for it, but that sort of thing doesn't encourage adoption.