Shahzad' First the 1n 4148 is a switching diode that should act like a fuse at about 100 ma so it is likely that your heating is due to oscillation as has been suggested. Second , by your vague description of the input supply it may be a "wall wart" type of supply. These are unregulated and designed to give name plate voltage at the indicated current. I.E. 12 v 700 ma. at lower currents the output rises to as much as 16-18 v. If this is the case then your input regulator(12v nominal) output could be 14 to 16 volts due to the available input and the resistor in the common leg. a volt meter will tell you what you have. Third the unfiltered input to the 7805 will almost certainly oscillate. and that oscillation coupled with the high input voltage will cause heating.

For line operated low volume devices this type of supply when properly designed is, if not perfect, at least a good stable build it and forget it design. The operative word is properly designed. Get the data sheet out and follow the example circuits, do the power calculations, heatsink as needed and do not leave out the reverse power protection diodes that discharge the output caps when input is removed.

These designs are not "state of the art , but there are probably more line operated devices useing them that using all other hi tech supplies combined. Even devises that use latest and greatest smps's often have a couple of these linear regulators on board where they give the best bang for the buck. hth Terry