Dylan (originally called Ralph) was basically Scheme plus a subset of CLOS. It also had some features meant to make it easier to generate small, fast artifacts--for example, it had a module system, and separately-compiled libraries, and a concept of "sealing" by which you could promise the compiler that certain things in the library would not change at runtime, so that certain kinds of optimizations could safely be performed.

Lisp and Smalltalk were indeed used by a bunch of people at Apple at that time, mostly in the Advanced Technology Group. In fact, the reason Dylan existed was that ATG was looking for a Lisp-like or Smalltalk-like language they could use for prototyping. There was a perception that anything produced by ATG would probably have to be rewritten from scratch in C, and that created a barrier to adoption. ATG wanted to be able to produce artifacts that the rest of the company would be comfortable shipping in products, without giving up the advantages of Lisp and Smalltalk. Dylan was designed to those requirements.

It was designed by Apple Cambridge, which was populated by programmers from Coral Software. Coral had created Coral Common Lisp, which later became Macintosh Common Lisp, and, still later, evolved into Clozure Common Lisp. Coral Lisp was very small for a Common Lisp implementation and fast. It had great support for the Mac Toolbox, all of which undoubtedly influenced Apple's decision to buy Coral.

Newton used the new language to write the initial OS for its novel mobile computer platform, but John Scully told them to knock it off and rewrite it in C++. There's all sorts of gossipy stuff about that sequence of events, but I don't know enough facts to tell those stories. The switch to C++ wasn't because Dylan software couldn't run in 640K, though; it ran fine. I had it running on Newton hardware every day for a couple of years.

Alan Kay was around Apple then, and seemed to be interested in pretty much everything.

Larry Tesler was in charge of the Newton group when I joined. After Scully told Larry to make the Newton team rewrite their OS in C++, Larry asked me and a couple of other Lisp hackers to "see what we could do" with Dylan on the Newton. We wrote an OS. It worked pretty well, but Apple was always going to ship the C++ OS that Scully ordered.

Larry joined our team as a programmer for the first six weeks. I found him great to work with. He had a six-week sabbatical coming when Scully ordered the rewrite, so Larry took his sabbatical with us, writing code for our experimental Lisp OS.

Apple built a bunch of other interesting stuff in Lisp, including SK8. SK8 was a radical application builder that has been described as "HyperCard on Steroids". It was much more flexible and powerful than either HyperCard or Interface Builder, but Apple never figured out what to do with it. Heck, Apple couldn't figure out what to do with HyperCard, either.