Cool idea.
The main thing I'm wondering about though are the possible technical issues.
From the description of how these flares would work, it seems they would have to be dynamic lightsources.
I have no idea what resource budget the game engine has for dynamic lights, but if this would work within what the game can handle, then sure.
My biggest (and so far pretty much only) fear about this game is the amount of lag these hundreds, potentially thousands, of players may cause.
So naturally I'm worrying about how adding cool features like these could have a negative impact on the smooth gameplay experience we're all hoping for.
/BB