Then your left texture, what is it ? The diffuse map, in this case it would contain pseodo light information which will result in a weird look at the edges.
Yes, it is even sometimes useful to not only reduce the intensity with distance but to clamp it to a certain area (ie. sphere). A simple,smooth clamping function would be
For the usual lighting methods, do you multiply by a distance factor?
normalized_distance = min(1.0, dist / max_dist); final_intensity = (1.0 - normalized_distance * normalized_distance) * intensity;
Better suited compared to what ?
I'm told the Phong Reflection Model may be better suited in this case.
You should choose a diffuse model (ie lambert) and a specular model (ie phong or blinn).
Here you can see the diffuse lightingmodel demonstrated in blender and here the specular models. Lambert,phong,blinn are the easiest one, the others are more complicated.