This bullet thing is one of the most horrible adventure game bugs in existence. I don't know if there was an update on Steam for this bug, but the retail version didn't get a patch, that's for sure.
By the way, I just checked - you don't need to put alcohol on the torch, the grease is enough, so in that case at least the bug ins't a showstopper so there was no need to start from an earlier save
At least this is the situation in the retail version.