Good thinking! I was concerned about monster spawns (visually-rendered light wouldn't block spawning)... but I'm betting monsters have to spawn outside a fixed radius from players anyways, so this wouldn't be a problem.
It
would look a bit odd when contrasted with blocky static lighting, but that's not a huge issue. Heck, Notch might even de-block-ify the static lighting a bit - he made fluid flows look decently-smooth, so maybe he'll give lighting a similar gradient. (Assuming it doesn't
too severely cripple the overall blocky aesthetic...)
I imagine that it would be only marginally complex to cheat a little bit and make the game treat the tile your head is in as being a torch tile... indeed, I could see something like that being only a moderately difficult server-side mod to SMP by actually having the server place and remove torches as you move.
Yes, moving within a square wouldn't move the torch, but the blockiness would make such small moves invisible anyway.
That's what I was originally considering. Problem is, if you're moving, you'd have to fairly frequently de-make and re-make the torch - and if you've got several guys on the same SMP server, there's a worry that the lighting code would start to lag from all the updating. Still, if the code
is fast enough that lag isn't an issue, I'm all for the simple solution!
Either way, I'm kind of just hoping that self-held lights will, in some form or another, come into play at or before when torches become temporary. Because I know damn well I'd end up building a torch a few steps ahead of me, advancing a few steps, destroying the torch, GOTO top. Which would be painful.