Try this.. get out your guitar and put your hand in your normal position(with too much arch, as you put it) now move your hand away from the strings, trying not to change your wrist position at all(but don't tense up!) Now wiggle your fingers "tremolo-style"
as you do this, very slowly unbend your wrist.
Do you feel the movement of your fingers getting any smoother or easier? less tense? You should ideally find the place where your fingers are moving as unrestrictedly as possible. For me, it is when my wrist is just slightly bent, not when it is perfectly straight, but i imagine that this is not the same for everybody. Be sure to pay close attention to all the muscles that are moving when you are wiggling your fingers. Can you feel the muscles in your arm? You should. If you can't, try really hard to concentrate on what muscles are making your fingers move.(they are in your arm.. not your hand.
The fact that these muscles are in your arm is the reason you need to have a straight wrist. The muscles there act like a rubber band that pulls to move your fingers. When you bend your wrist, it restricts the movement, its like stretching a rubber band around a corner, the tighter you pull it around a corner, the harder you have to pull to affect either side.
SO.. in conclusion
.. its not about how straight your wrist is, its about finding for yourself the most relaxed position that allows your muscles to move freely.
If you have given yourself the bad habit of playing with too much arch, then it can be hard to stop it. The best way i can think of fixing it is to just stay as relaxed as possible, find your ideal wrist position and practice some arpeggios VERY SLOWLY. Try the whole time to be very aware of all of your muscles, and stop to readjust if you feel any tension creep into your wrist.