The lit strange object is an item obtained during the Fremmenik Trials quest by using a tinderbox on a strange object (or vice versa). In the quest, the lit strange object is placed in a pipe outside the Rellekka longhall to distract its occupants while you replace a keg of beer with non-alcoholic beer.
If it is left in the inventory for too long, it will explode and deal 2 hitpoints of damage to the player.
Due to the lit strange object's appearance and explosive properties, it is presumed to be a cherry bomb. This notion is strengthened by its use in a pipe, a reference to a stereotypical prank pulled by young children.