It would probably help if we defined what we mean by "Lunar". It's used in several ways:
ILH1 also gives the proportion of the population in various who are Lunar rather than any other cultural group. This may be the same as 2 above, 3 above or something else.
ILH2 mentions Read and Write New Peloran in most of the cults where writing is to be expected and not in the others.
My conclusion is that Irripi Ontor teaches literacy to pretty much anyone who asks and is willing to pay. However there are numerous reason why not everyone is literate, or if literate not in New Peloran. Nor is literacy a requirement for joining the army or most cults. However lack of literacy is a barrier to progressing in both. Unlike many cultures both inside and outside the Empire the Lunars write their rituals down. If you can't read you've got to get someone to read them to you so that you can memorise them.
In the Hero Wars Rulebook there is an advanced experience keyword for Lunar army officers which includes reading and writing so I suggest that written orders are used exclusively at regimental and levels with copies kept so that disputes can be resolved. Orders to centuries are usually written but sometimes given verbally. At squad level they are always given verbally even if a written record is kept. So a centurion will be literate, a septon may or may not be and few of the rank and file are.
Then again there will be some senior Dara Happen officers who are literate in Dara Happen but not New Peloran. They have a scribe to translate orders when required. They will be Lunar Citizens but not literate in New Peloran.
The Seven Mothers magic seems to be based on what's most useful for converting barbarians. Particularly the chieftains and priests who can sway others. So while a PC is likely to take the lot it's wrong to assume that every NPC will do.
-- Donald Oddy http://www.grove.demon.co.uk/
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