This is what I usually do. I don't bother too much about trying to throw light on the flame prop as long as some light is falling on it, I set its Ambient Color to white, its Hightlight Color to black, and its Object colour to what ever seems to work best with the lighting. The flame prop should have 'Casts Shadow' turned off. For the light thrown out by the torch I use one of my 'P5-Omni-12' lights (available in the Free Stuff). The 'Dist End' dial is offten a key factor in making torch light look real.