With the Image API, it's generally best if you don't try to manipulate images every frame. It's intended more as something you occasionally manipulate and use blend modes or filters to do the real-time stuff.
For a lighting effect on the Flash target, can't you get away with a circle of transparency and a multiply blend (or something to this effect)? No need to use the clear mask feature.
Great game by the way. I haven't played through it, but what I've seen so far is impressive given the time frame.