Why does everybody who notices this automatically jump to the conclusion that luminosity has no effect? That's absolutely senseless... even if that ring of "light" did represent a "minimum" luminosity, increasing luminosity would still allow you to see more of the world around you, so obviously, it has an effect.

Anyways, by default, mobs can see one square in each direction even in darkness. Yes, luminosity has an effect... other mobs won't be able to see your mob, even though it appears to be surrounded by an area of "light", unless they're one space away.

There's a variable now that controls how far away you can see in darkness... I use it in Red Cap to give the human's range of night vision. You can set it to zero if you don't want people to be able to see in the dark.