The lute has a very pleasant part of the audio spectrum in the classical repertoire. It is much easier to get a lute working with a string ensemble than it is a guitar.
It just seems to fit the spectrum better. Unfortunately, that is often overshadowed by the sheer impractical nature of the lute. It has a number of strings more than a guitar. You have violin style pegs instead of machine heads and until relatively recently the lute used old fashioned gut strings as well.
Restringing it is a nightmare, tuning it takes forever. It takes a really dedicated player to master, you cannot play the lute with nails so if you come from a guitar background you have to totally remaster your picking technique
It is even notated in an archaic form of tablature, so you even have to learn a completely new form of notation if you want to play the music written for the instrument.
And lastly, it is nowhere near as versatile an instrument. Where with a guitar you are only limited by your adaptation skills with a lute you really are only ever going to play renaissance and baroque music.
It is not a bad instrument it just takes an amount of dedication to master it that 90 percent of the people in the world don't have.