It's a problem with the textures image. If you feel comfortable editing it, you can fix the problem by removing the extra background filler around the torch image and replacing the one in your minecraft.jar file with your new edited image.
Yeah, not all of the background was completely erased. If you don't feel comfortable doing it, send me a PM with a download link for the terrain.png file (use mediafire.com to upload) and I'll see if I can clean it up for you.
Hmmm... I have the image open in Photoshop, zoomed in to 6000% and i see nothing but transparency all the way to the border. Just for the hell of it I used the eraser tool and went around the edges of the torch texture, saved it, then replaced the original with my modified version, but the torches STILL have the white outline. :sad.gif:
I just tested that terrain.png with my client and I don't get that artifact at all. I also made sure to check thoroughly for any leftover partial-alpha pixels but found none. Perhaps it has something to do with your video card/drivers.