Historical regions (albeit with strong separatist movements) will not be able to form a national team. The reasons for this would seem clear, nevertheless I'll go into them: firstly, the eventual consequence would be the splitting up of larger nations into several teams, allowing nations with larger populations the ability to be over-represented in the Nations' Cup; secondly it's feasible to confirm that a particular player is from a particular country, this would start getting trickier when I'd have to start finding out whether someone's from this particular region of France or not.
I accept that the way the world is laid out is not perfect, national borders are perhaps not what they should be and this all stems from warfare and such. However, as an organiser of a Nations Cup for a fairly niche multiplayer game, I don't see it as my responsibility to resolve international affairs and the demands of various separatist groups. As such, I will go by internationally recognised states as my definition for whether a nation is allowed to submit a team - which I believe would allow Monaco to form one.
Basically: Lorraine is no more a state than Kent. Kent at least has a cool boxing horse for its flag though.