Are you sure you're playing updated version? I've never had the problem with the flashlight making things hard to see as it fades away the closer you get to a object. And the game is supposed to be dark since the club is supposed to be closed. Newer updates has actually added more lights to include places where you don't even need your flashlight at all.
If you are playing updated version, try messing with your G.card some or update it's software.
Edit: Ah, you might have problems when using the PDA at the same time as flashlight.