Oh I see, You can pixelate a lightsource with a shader, but you could also try the sprite again. I feel like doing a separate sprite on top, that could just be either a stepped gradient, or simple circle of light, set to 'add' in the editor can serve as a simple light. Plus then you might be able to animate the sprite and do fireflies around the lantern, or make it pulse in and out to be like flickering, that would be really cute. I'm sure you had some version of that, but maybe you don't need to combine it with an in-engine lightsource at all, especially since it's not casting shadows right now.