I'm a functional convert but my colleagues will tell you just how convoluted some of my code has been due my trying to shoehorn everything into a functional mold.
Many in the functional world realize that some things are akward (see Peyton-Jones's talk "Wearing the hair shirt" about Haskell).
To answer the question about loops with recursion: you seldom write recursive functions when programming functionally but instead cast things into maps, filters and reduces. Thus it's not such a big problem (and the cool thing about using map & family is that you can replace them with parallel versions quite easily). With that said, some practical functional languages provide sugar to write seemingly imperative loops.
In terms of libraries, at least Scala, Clojure, F#, CAL, Nemerle (amongst others) ingrate well with either the JVM and/or the .Net platform. You can implement Erlang nodes in any JVM language (which I grant is not as good as calling directly into the JVM from an Erlang function).
There are definitely advantages to writing as much of your code as possible to avoid side effects (obviously ignoring the odd print statement to help with debugging), since your code becomes easy to test and easy to reason about. But in real world apps you will need state management - Clojure and Scala both allow this (in different ways) and I'm sure that F# does too (though I've never worked with F#).
I think that these three languages address many (all?) of your concerns. They all have cool user communities, so give one of them a shot.