When I walk at night, i usually carry a light in my hand. For walking, I prefer my 4D MagP7, which I habitually carry ready in my left hand, index finger on the switch (my shoulder takes the weight, so it's really not tiring at all), but if its bulk will be an issue at my destination, I'll often take a 2C Mag61 (same grip, but can't rest it on my shoulder, so I carry it down at my side when not in use -- it gets a bit heavy, though) or a 3AAA, 18500 or 18650 light (again, left hand, "tactical" grip w/ thumb on tailcap).
Generally, I only use a flashlight when going across an intersection (shine it in front of me for increased visibility), or going through a couple parking lots I use as shortcuts. On the sidewalks, I just use a headlamp where needed. I also use a flashlight to check out anyone approaching me -- using the spill and, where needed, corona on the big lights, as 99.999% of the people I meet will be nice guys like me, who don't want blinded any more than I do...
I'm not sure whether I'm more or less likely to be thought of as carrying a weapon than your sleeve carry; after all, a Mag over the shoulder could be taken as a club of some sort in bad lighting, a short light in the hand less so. But I've never had any issues with it, and frankly, as BRO pointed out, it doesn't bother me if someone does perceive it that way -- cops are the only ones who would pose a problem if they thought it was a weapon, and if I were approached by any cops, they'd realize it was a flashlight when I turned it on. I suppose if approached by ninja-cops, I might have a problem.