It is an issue with the code and the objects settings in the game. No INI fix. Using the blur adjustment will reduce the look, but it will always be there, until they fix the shader-code, the light-code, and the object settings in the original objects. The torch is not where the torch actually is displayed, if you are referring to the zig-zag, that is your body blocking the light. The torch is actually on your shoulder, not in your hand. If they change the location, or make you transparent to the torch, it will light the ground as other games do.
I assume, if this is on purpose, that it was done to stop the light from disappearing as your torch pokes through walls, npc's, or other objects. Since your shoulder rarely does that, it was safe to emanate light from there.