You should be able to create such as schema using hsqldb.
However, to implement "advanced" features (such as views, referential integrity, and the like) you'll need to configure HSQLDB outside Tersus, just as you would any other database, and using the tools provided by that database.
I can't comment regarding the various database connectors. And just to make it more confusing, you might want to consider postgres as well.
Regarding your embedded server comment, note that ever since the first opensource version, the studio (based on eclipse) has included an embedded server, there's been no change in that sense between version 1.3.x and 1.4.x.
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