In our game, "A Light in the Dark", the hands were too small and were placed very close to the camera because of that, and when we added the lamp, it was either way too small in the world or way too big in your hand, so I just made it change its size as you picked it up and dropped it.
Also, for enemies noticing the light, I wrote some math that calculates the light level, but it was not at all accurate in actually calculating the light level. I called it good enough when I got the output number to grow as the light got brighter.