I was originally working on a programming language that compiled to Lua, so I named it Lunatic. Later I decided to write a runtime for the language and called it Lunatic VM. We ended up with an actor-based language-agnostic runtime, but the original name was kept though it does not have any connections to Lua anymore.

The mentally ill meaning is not much used anymore. The #2 meaning at https://www.dictionary.com/browse/lunatic is the default unless context implies otherwise.