No, it's not right. Ive had similar experience with sun being square (not sun halo), but that was after some failed tweaks to scene dat. Does it happen after reloading the game? Too much antialiasing maybe? Or maybe it was common in 1.4 version of the game.
Edit - are you using PE4 final (~september 2008), cause there is a mention of "blocky fire fix" in read me of this mod I have on hdd right now. Should be fixed...
Edit2 - if PE4 guys fixed it I suspect the file "particles.dat" (in Library) was involved, and if RSRD (its old version) overwrites this file (or maybe materials.dat too?) then the fix could be lost.