Combining objects only gives a noticeable affect on performance if you're using lots of objects, probably hundreds if you're using plains.
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There is a great level editor which you can use to create 'lightmapped' levels (that look as if they're lit) that you can load directly into dbp. Then you can use a shader to produce the flashlight effect. It can work really well as you can see from this level (produced using the free editor "MapScape"):
This can be quite complex stuff to program though and you'll need to learn how to use the editor.
If you really want to try it then you can start by downloading Mapscape here:
MapScape by Evolved Software
Once you have a level built, lightmapped and exported as a "dbo" (dark basic object) you can try the shader with some simple code.
I suggest you try the editor before you worry about the code. This is by far the best way I've seen to achieve a realistic flashlight effect.
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EDIT: I completely put most of my response for this in the wrong thread.
However, Mapscape is great for creating levels. In answer to your actual post see the first part of my post and ignore the flashlight part (unless you're interested of course!) sorry to confuse...
