It's just cool new effect Notch has added. It's bad in your case, but this opens new possibilities to build something entirely new - something we never had chance to before this.
As Notch has warned: don't get too affected to your saves.
You could open this in MCEdit and raise the whole thing.
To Everyone that thinks its a bug because the torches dont work or the map is from 1.7 or whatever you excuse is, IT IS NOT A BUG. Notch intentionally put that in there. During the first PAX live stream he even talked about it. Its in 1.8 maps too.
alright this threads somewhat irked me at the people who havent ran into this and act like they know what theyre talking about. i encountered this earlier yesterday and have since recorded it.
all blocks edit'd out you can see the fog change at around level 30 and get worse as you go deeper. i concur with original poster this is reaaaal problem that needs to be dealt with.
I agree it looks bad at that single moment when it jumps, but otherwise it's very cool.
This is why I like Notch doesn't easily change his mind. We'll get used to it. If you don't want the effect, don't travel too deep. There's nothing too valuable below level 12, where the effect is at most. Diamonds can be found few blocks above.
I like the idea of the field of view around the player getting lower the lower you go. I know that it will annoy people with bases at bedrock level and it will look silly for open top quarries etc but I like the idea of the effect. For now I'm going to avoid building anything big where it gets like that.
Also @ the people who wonder why his thing took 10 months:
1. He only showed one screenshot, it is probably much bigger than we can see and,
2. Not everyone spends their whole life playing minecraft and doing nothing else. This person probably worked on it as a more casual project.
I find it silly that it gets darker no matter how much light there is.
It kinda reminds me to a typical nightmare scenario, where the darkness is so dark, that not even the brightest light can light it up.
It is especially ridiculous when you have a hole going down to bedrock with the sun shining in.
If you are in direct daylight, but it's foggy, you can't see much. The fog is black, which is just more awesome than gray fog. It's only natural that there's so much dust in air at those levels that you can't see a thing (for those wondering: this was joke).