The details of lexical scope where defined in Algol 60 (1960), nearly 2 decades before Rabbit (1978).
People did know how to implement things back then, and TeX is a great example of that. It is just our definitions have changed over the years of what we consider better.
Rabbit was closure conversion, which was efficient implementation of first-class functions with lexical scope. The abstract discusses the difference with ALGOL:
People did know how to implement things back then, and TeX is a great example of that. It is just our definitions have changed over the years of what we consider better.