The main problem with using produce flame for illumination is that once you attack with it, it goes out and you're in the dark until next round.
Example Uses: I've listed the radius expansions for non-magic flames in the above Light Sources list. This is a pretty powerful effect in my opinion. Getting a cone of 120' bright light and another 120' dim light from a bullseye lantern means you're spotting Drow and Svirfneblin at the same range their special darkvision could spot you, which would mean at best they'd have disadvantage to spot you in your darkness while you can light them up and attack as normal (and the regular hooded lantern is pretty great with this as well).
But they will see your light coming well before you will see them. IMO, you can see a light source at a range of 10 times it's dim range. So, the NPCs will see the party's light source long before either side sees each other.
Dancing lights, I love, but remember, it only sheds dim light, so you are at disadvantage for perception checks if they are hiding from you.
I am curious what most parties use for a light source in their typical dungeon or darkness adventures?
Typically is is not a big deal in my games. I may say something about the area being dark and the players say something about torches or light spell. In fights it does not matter unless someone is trying to put out the light. The PCs are assumed to have dropped the torch or lantern and fight in the same area. Occasionally there is a monster out of sight further in the room that the PCs cannot see, but light or dancing lights will get cast and take the advantage away.
It seems to be like water and food where it only matters in certain circumstances.
Yes definitely a problem. Unless you light your target on fire with it of course.