In order to get the picolisp-mode working correctly you have to add the following expressions to your .emacs and adapt them according to your set-up:

    (add-to-list 'load-path "<path-to>/picoLisp/lib/el")
    (require 'picolisp)   ;; Picolisp TransientSymbolsMarkup is automatically loaded

If you have also SLIME installed, it will suck all possible lisp extensions up (greedy bastard). So in order to get the correct file-association for picolisp files you'll have to also add this:

    (add-to-list 'auto-mode-alist '("\\.l$" . picolisp-mode))

If you want, you can add a few hooks for convenience:

    (add-hook 'picolisp-mode-hook
       (lambda ()
          (paredit-mode +1) ;; Loads paredit mode automatically
          (tsm-mode) ;; Enables TSM
          (define-key picolisp-mode-map (kbd "RET") 'newline-and-indent)
          (define-key picolisp-mode-map (kbd "C-h") 'paredit-backward-delete)))

By the way, don't forget to patch your paredit.el (v21) with the patch provided to get a smoother editing.