"Passing the torch" is a phrase that means stepping away from a responsibility or action, and in the process helping boost the next person to do it. So here we have Ioan Gruffudd figuratively passing the torch to Pedro Pascal, since they both played Mister Fantastic.
However, he is also literally passing a Torch - a Human Torch, Johnny Storm! That's Deadpool 3's own Chris Evans, being passed from one set of arms to the other. And "housewarming gift" is a joke, since a guy on fire would literally warm your house.
Pedro-Reed is demonstrating the way to politely accept a gift, even if you don't want it: he's expressing genuine gratitude for the gesture of someone giving a gift, without saying anything about what he thinks of the gift itself. (It's not that he doesn't like the Human Torch, it's just that he already has one, he doesn't need a second.)
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