Direct imaging of extrasolar planets in visible light, and Earth-like planets in particular, is an exciting but difficult problem requiring a telescope imaging system with 10-10 contrast at separations of 100mas and less. Furthermore, only a small 1-2m space telescope may be realistic for a mission in the foreseeable future, which puts strong demands on the performance of the imaging instrument. Fortunately, an efficient coronagraph called the Phase Induced Amplitude Apodization (PIAA) coronagraph may enable Earth-like planet imaging for such small telescopes if any exist around the nearest stars. In this paper, we report on the latest results from a testbed at the NASA Ames Research Center focused on testing the PIAA coronagraph. This laboratory facility was built in 2008 and is designed to be flexible, operated in a highly stabilized air environment, and to complement efforts at NASA JPL's High Contrast Imaging Testbed. For our wavefront control we are focusing on using small Micro-Electro-Mechanical-System deformable mirrors (MEMS DMs), which promises to reduce the size of the beam and overall instrument, a consideration that becomes very important for small telescopes. In this paper, we briefly describe our lab and methods, including the new active thermal control system, and report the demonstration of 5.4×10-8 average raw contrast in a dark zone from 2.0 - 5.2 λ/D. In addition, we present an analysis of our current limits and solutions to overcome them.