Hmmmm….. You know, I honestly can't tell whether he's bluffing right now or not. I mean, hundreds of new Luckys being created without anyone but Dr. Ecchs noticing? I could buy a couple of dozen, maybe, but, I'd think that Ecchs would have put the kibosh on messing around with dimensional alteration tech, which is the only way to produce new ones, so the rate of increase should have slowed way, way down. And I suspect that you can make "physics works" a narrative law without necessarily making it so that physics fails without the machine. He's also very good at talking on his feet.
All that said, he's scary good at planning things so I can't quite be certain that he wouldn't have done something like that.
Of course, he's also a lazy egomaniac, so he does tend to miss things sometimes.
Anyway, this scene sounds a bit too much like the standard "heroes rush in and defeat the evil villain" scene. I find that worrying, since Ecchs would have rigged the narrative laws in such a showdown in his favor.
Ultimately, I think my preference would be to go ahead and punch him a few times and see what happened. Or, possibly, just shoot him. Whichever. Like Lucky said "When people are talking, they aren't exploding."