Thanks for the constructive critisism, always good to hear some :)
Actually, it's the second one. The light's intensity symbolizes its health. 100% health = 100% intensity, and 0 = 0, with a non-linear curve in between. The game ends when it gets completely dark (except for the torch and the fire sprite you mentioned). We consciously decided against having a dedicated health bar or counter in order to keep it more vague. But maybe we overdid that a bit.
Concerning feedback for burning tentacles: I 100% agree. We wanted to include a kind of burning shader, but time ran out. :)