Because the gun is too heavy/it's impossible to aim properly with just one hand. They would, but I figured they never expected a full-scale invasion - the guards were in case somebody goes nuts and flashlight-less weapons are cheaper. Besides, the other marines and z-sec have helmets with nightvision/built-in flashlights, the player character doesn't have a chance to get one himself. Why does it do more damage than punching? Well, because hitting somebody with something tends to always be more powerful than punching, since, you know, it's the object's weight plus the weight of your hand, as opposed to just the weight of your hand.
Everything makes sense, if you think of it.
Concerning the flashlight being powerfull, it resembles the ones used by the police. Do you people actually have one of those in your hands?
That thing is heavy and hitting someone with it will surelly hurt bad, specially if hits the head or torso.
But common, even today soldiers have built in thermal, infrared or ultraviolet lights on the gun sights, I can't belive that in 2147 UAC marines haven't this at their disposal!!!

The way they implemented external sources of light was to artificially enhance the so called "atmosphere" of the game.
I use falkens light mod, wich adds lights to all weapons except the chainsaw and grenades, and the game atmosphere is still creepy and scary, I still piss myself a lot because the terrifiic work they did with the sound.
The sound contributes much more to the horror than the shadows in my opinion.