Todd mentioned something about setting certain areas on fire and having it on the walls and ceiling or something like that.

So when the fire burns out will the grass/environment magically be unharmed or will we have some sort of destructible environments?

Probably not destructible, maybe just a temporary texture change or something.

I imagine that there will be some temporary scorching that will probably disappear when you leave the area.

This. Just like every other game really.

Eternal flames a la Bruma Mage's Guild.