Light Falloff through a grid
It looks to me like you're resetting the distance calculation at each grid intersection? So every time you march another grid cell you're dividing the light intensity by $gridsize^2$ ? That would explain your observed results, since dividing by $1^2$ equals no change. It won't give you the correct result though, since to get the right attenuation you need to track the total distance back to the light source and square that. 

Also note that the attenuation term used in rendering is usually a bit more complicated than just $1/D^2$ - generally it's a quadratic, $1/(aD^2 + bD + c)$. While not physically correct, it's more tunable and easier to get visually pleasing results. In your case, for example, using $1/(D^2 + 1)$ would prevent the edges immediately surrounding the light from being brighter than the light itself.