Use Command-; (or the Options > Option Key submenu) to toggle the meaning of the actual Option key. By default it switches between “Mac OS X extended character mode” and “Emacs Meta key mode”
It seems like you have “Meta mode” active (Options > Option Key > Meta), but you probably want the “extended character mode” (Options > Option Key > Standard Mac Characters).
In Aquamacs Emacs M-l (“Meta ell”) is probably bound to the downcase-word function, which looks like “move one word to the right” if the word is already in lowercase.