Yes, Darkkal is right, the battle engine is somewhat functional after a fair amount of hair-pulling and debugging. However it is still in early stages of development, and has no gui as of yet. Though the mechanics are acting more or less as expected.
Lua is being used mainly for interactions - specifically pokemon moves, and interactions with scenery on the map. As it is a lightweight and relatively simple language it will allow non-technical people to create content in the engine quite easily.
We're using an open source Lua implementation for .NET that just rocks, because it can import C# functions and objects into the Lua runtime.
To Awkward Squirtle i've noticed that Gen 5 tiles are always flat. The exception is if you are walking on a model. I think this is the case, unless I'm going blind. So tiles can be drawn as flat squares, but can be made transparent if slopes or complex objects need to be walked on.
Also, there are no explicit layers, just a single grid of tiles on each map. Scenery and trainers and so on are stored as lists, with the tiles containing references for the purpose of interactions. This allows me to be efficient, because I can sort them by model and draw them multiple times without having to load different information to the video card. I haven't actually done this yet, but I was planning on doing it when the optimisation stage started.