I'm thinking this could be done with an AI Package. I've done some pretty interesting things with AI Packages that I actually found to be better than using scripts (personally, I prefer scripts because I'm more familiar with code than the CK). Seems like you could create an AI Package with waypoints at each of the torche locations and set it so it activates at that location. May need idle markers, not sure, but I would think this is doable with no code. (Worst case, maybe a code fragment for lighting the torche if they can't be activated.)
For the rebuilding part, I'd suggest looking at how "house upgrades" are handled by the game. Basically, you create your new "upgrade" in the CK and set an enable parent (usually a marker) and the quest stages would toggle those markers. You could have lots of stages to simulate "building progress".
I've actually thought about doing a mod like this; I think it would be pretty fun.
Edit: BTW, I'd gladly help you with code you might need for things like the torche, etc
An AI package would make sense, I was considering using it for guards to have the patrol and guard the walls and roads. But for "dynamically" placing items I had never thought it to be possible, who knows.
Regarding house upgrades, I never knew this game had that.

That is reassuring that code might not be needed, but wanted for many things to evolve a mod like this to be something more than just a few buildings. As for code help, I really appreciate your offer, right now I have encountered a few problems that I was not aware of until I had already built the entire outline of the castle/city: Invisible Walls.

Not the border ones, the ones that stay on top of walls or blocks for some reason. I tried looking for a mod that removes them but all I came up with was requests for one: http://forums.nexusmods.com/index.php?/topic/547997-removing-invisible-walls/ I might make a request in the Skyrim Mods forum section after this post.
Then there is optimization implants I want to add because this is open world and huge (Small section: http://i46.tinypic.com/m0pdc.png), in most cases I have to wait a minute or so before running around because there is so much stuff to load. I will let you know though once I start the quests and make NPCs. The we can see what your skills can accomplish

For the lighting fires idea you could try taking a look at what Delphine does when you first enter Sky Haven Temple.
Thanks, but I am going to be honest; I have not advanced far into Skyrim's main questline. I have done little more than half of the DB and all of the thieves guild, but that was months ago. I have made it as far as High Hrothgar when you first meet the greybeards. Unlike Oblivion, Fallout 3, and New Vegas, which I played on the xbox for years, Skyrim I bought for the PC right away since I bought a gaming PC in dec 2010, so the influence of mods has in some ways altered my ability to play the game. On the xbox I had no choice but to play the game as it was, and it was great I love all three.
I know that the Dragonborn does not receive a castle and the lack of complex companions like in New Vegas or mods such as Willow, Brisa, or Vilja have made playing the game impossible almost. I mean most of them, if not all, are just mercenaries basically to help struggling players. So I decided to create a castle for me and wait for someone to release a good companion mod. I have seen most of the houses in screenshots and bought
Breezehome(?) once but it was not my style.
tl;dr: Haven't beat the main quest line yet or even come close to the far.

Hmm I might make a WIP thread in the mod section, that way I can clearly state a list of issues and get some feedback.
Thanks for the responeses guys, still looking for more insight as always.
Edit: While it's fresh in my mind, I am having a sound issue for the waterfalls, maybe I am using a faulty sound thing but I have looked over water tutorial videos on youtube and they add the same green icons that I do and get sound but when I try to test in game nothing plays. I think I'm doing it wrong.