I've narrowed down a couple of issues.
It appears to be renaming words inside multi-line strings (using [[ ]]):
this=5
function that()
print("hi")
end
string=[[
this and that
]]
And ultra-compact mode appears to have difficulty with the short-hand "if" syntax:
function compare(n)
if(n>10)return "big"
return "small"
end
print("15 is "..compare(15))