The Lute is an instrument found predominantly in Bard Quest. The Bard comes equipped with a Lute at the start of his adventure, and is shown to have some kind of ability in at least playing it. Lutes are the weapon of choice for the Bard as well, as he envisions slaying a dragon by whopping it upside the head. The Clown Bard uses the Lute as a weapon, but rather than use it as a physical affront, the clown plays it to create majyykal affects.
When a Bard is launched from the Bard-A-Pult, the Lute is stripped from the Bard, presumably to humiliate him or her, and the lutes are left in a huge pile next to the Bard-A-Pult.