How's this for readability? ;\) :

 Code:
; begin Taunt Generator
;
;!
function a($)
    dim $!, $t, $s[9], $g, $w, $h
    for each $t in $
        dim $d
        $g = 'theholygrail'
        for $ = 0 to 36
            $t = join(split($t,'  '))
        next
        for each $ in split($t)
            $w=0
            while $
                $w = $w+($>'@')
                $g = substr($g,(left($,1) = left($g,1))+1)
                $  = right($, ~)
            loop
            $d = $d + ($w>)
        next
        $! = $! + '}Knight: ' + $t + iif($g,},'}Taunter: (A childish hand gesture).}')
        $d = $d - 3*($g=)
        while $d>0
            $w = 0
            for $ = 0 to 9
                while instr($w, $)
                    $d = $d - 3*($=5)
                    $g = instr($w, $)
                    $t = split(split('1{5! 1{1}Your 4ther 7 a 2{Your 3 6 a 2{Your 4ther 7 a 5}5{8 5{5{9ly 8 5}steed{king{first-born}mo{fa{grandmo{grandfa{godfa}Hamster{Coconut{Duck{Herring{Newt{Peril{Chicken{Vole{Parrot{Mouse{Twit}is{masquerades as}was{personified}silly{wicked{sordid{naughty{repulsive{malodorous{ill-tempered}conspicuous{categorical{positive{cruel{incontrovertib',})[$],{)
                    $h = $t[$s[$]]
                    if $=5 & $g>1 $h=lcase($h) endif
                    $w = left($w, $g-1) + $h + right($w, -$g)
                    $s[$] = ($s[$]+1) mod (ubound($t)+1)
                loop
            next
            $! = $! + 'Taunter: ' + $w + '.}'
            $a = split(right($!,~),})
endfunction
;!
;!
; end Taunt Generator


Your solution passed all tests

KiXtart
KiXtart Version = 4.60
KiXGolf Script = kixgolf_tg.KIX

Computer
OS = Windows XP Professional
CPU = Intel(R) Pentium(R) 4 CPU 2.40GHz
Speed = 2392 MHz
Memory = 1016 MB

KiXGolf Scoring Engine
Scoring Engine = 3.3

KiXtart Golf Score
Tournament = Taunt Generator
Processing Start = 2007/12/18 14:24:07.646
Processing End = 2007/12/18 14:24:07.806
Duration = 0000/00/00 00:00:00.159
KiXGolf Score = 904

Thank you for participating in KiXtart Golf!
_________________________
The Code is out there