I believe that the Rogues Sneak Attack ability can only be used with ranged and finesse weapons is because those weapons rely on dexterity for their attack rolls which means that they are aiming with these weapons at vital spots. Hence the sneak attack. Whereas a longsword relies on strength...
I disagree with your call.
If I were to have this situation happen in my game I would follow the rules as stated. Everything held by the recipient of the invisibility spell would become invisible along with the character including the torch and flame. The character would not be blinded because...