I realize I'm years late answering this, but I just ran across this question while doing a web search and I wanted to correct some misinformation that is posted here.
"Closure" just means a callable object that contains both code and an environment that provides bindings for free variables within that code. That environment is usually a lexical environment, but there is no technical reason why it can't be a dynamic environment.
The trick is to close the code over the environment and not the particular values. This is what Lisp 1.5 did, and also what MACLisp did for "downward funargs."
You can see how Lisp 1.5 did this by reading the Lisp 1.5 manual at http://www.softwarepreservation.org/projects/LISP/book
Pay particular attention in Appendix B to how eval handles FUNCTION and how apply handles FUNARG.
You can get the basic flavor of programming using dynamic closures from http://c2.com/cgi/wiki?DynamicClosure
You can get an in depth introduction to the implementation issues from ftp://publications.ai.mit.edu/ai-publications/pdf/AIM-199.pdf
Modern dynamically scoped languages generally use shallow binding, where the current value of each variable is kept in one global location, and function calls save old values away on the stack. One way of implementing dynamic closures with shallow binding is described at http://www.pipeline.com/~hbaker1/ShallowBinding.html