I'll try to be concise.
My suggestion is to make it so Willow's lighter produces a different kind of fire so that setting mobs, structures and items on fire doesn't have most of the downsides of setting things on fire in regular ways.
Why:
For Willow, despite pyromania being her central attribute, fire is still somewhat situational, rather than a part of her daily life. That's of course for good reason, as the player wouldn't want fires in the middle of their base, or having burning mobs drop ashes instead of their loot. Another motivation is having the lighter moving beyond being an item only used at the very early days.
How:
Willow is great at creating controlled fires: When setting structures or items on fire with her lighter, that fire won't spread. And structures lit this way won't burn down. This way she is free to set stuff ablaze for warmth or sanity, with a much more sensational effect than campfires. At base or anywhere else, without griefing herself or her fellow player.
Hitting mobs once with her lighter guarantees they will be set ablaze.That fire also won't spread, and mobs lit this way will still drop their regular loot, unburned.
Maybe fire started from her lighter has different visual effects to differentiate it from regular fires, so everybody doesn't freak out at stuff being burned 