The only thing that comes to mind is ACP. Some of the running stances for different fighting styles hold weapons down, and would behave the same way with a torch. Anything changing the animation for your PC could cause this.
Checked the various styles.. that's exactly what it is.
Demonblade, kensai, assassin, and bear-claw (or mighta been dragon claw) do the weird torch holding.
The levitating arcane style handles torches very off too... the torch floats off to the side, but the left arm is still up in the torch holding position even though it's "empty" (that is appearance wise, not actually 'slot' empty).