Well, you'll definitely want to use indirect light. It's a more realisitic looking lighting. You may either want to put a very dim point light behind the torch (inverse square falloff) or use a glowing material for the torch. Plug the texture for the torch into the ambient channel in the material room and start with a value of something low like 1.0 and build up until you get the effect you're going for :). Personally, I'd mix the two.

Laurie