'TO the music of the gods, we dance," sing the peasants of Broadway's musical fable, "Once on This Island." And today they will be dancing to celebrate the show's remarkable one-year run. Against tremendous odds, this small-scale musical has lasted, often entertaining repeat audience members who find it in a class by itself.Lyricist Lynn Ahrens wandered into a used bookstore a few years ago and chanced upon "My Love, My Love," Rosa Guy's novel of Caribbean folktales. "I was on one of my feeding frenzies," she laughs, recalling that her last show, also written with composer Stephen Flaherty, had just closed. "Once I read it, I thought it was wonderful - so lovely, so theatrical, this colorful world." The story relates interactions among poor peasants, rich landowners, and the island's nature gods, who compete for the hearts and souls of two young lovers. After working on the adaptation, and securing the rights from the novelist, she and Mr. Flaherty "didn't tell anybody about it while we were writing it. We kind of shut ourselves away for six months." When the show finally opened at the off-Broadway Playwrights Horizons in the summer of 1990, it was a hit. Critics and audiences warmed to the melodies, the charming love story and director-choreographer Graziela Daniele's spirited staging, which uses bright costumes and set pieces to evoke an island filled with myths, music, and energy. Today, presenting a musical on Broadway involves paying production costs, achieving creative collaborations, finding investors, and motivating an audience. Producer James Walsh admits that he normally doesn't do musicals, "but I liked how it was crafted." Despite steep competition from the big-budget productions, Walsh decided to move the show from its small home on Theatre Row to Broadway's Booth Theatre. While larger, more conventional musicals may require as much as $8 million to $10 million to launch, and a weekly box-office income of around $300,000 to keep them afloat, "Once on This Island" needed about $1.5 million to move to Broadway, and the weekly income required to break even is between $110,000 and $140,000, depending on royalty waivers and ad vertising costs. The Booth's capacity is only 802, compared to other major houses such as the St. James, home of "The Secret Garden," which can seat 1,644. With no flashy effects, the top ticket price is only $47.40. The range for other shows is from $60 to $100. Still, inexpensive production costs never guarantee a hit. "Audiences, for the most part, have a 'big hit' syndrome when it comes to musicals," Mr. Walsh explains. They have come to think of Broadway as a place where spectacular effects, lavish costumes, and dazzling production numbers define a show's worth. "Little musicals rarely fare well here. Broadway requires a crossover audience - tourists, business account business - whereas off-Broadway can subsist with a New York audience primarily." He says th is show "is not a 'corporate account' show." Who has been keeping it alive? The show's press representative, Philip Rinaldi, calls it "a real word-of-mouth show. It is a mixed audience of blacks and whites. Also, we do a very big family business." To publicize it, he has emphasized its values and critical acclaim. "There's no gimmick to this show. It's just very, very good." A national tour and productions in Britain and Japan are being discussed that might help earn back the initial investment. But its run will continue as long as audiences respond as they have. Ms. Ahrens says she is "constantly getting letters from people saying they're coming back.... It's a small show, so there's been very little money for advertising, but this is a show that grabs people ... and lets them turn back into children for a time. And for some people, six or seven times."