I quickly abandoned the idea of using ARC for many of the reasons stated above. I set it up initially to use it that way, enabling ARC and HDMI-CEC on both tv and AVR but still no sound. So I simply shrugged and plugged in an optical cable between the two and haven't really looked back. I use a harmony remote to control all my stuff and it works great as it is. It did seem much more problematic to enable that feature not knowing what screwy things the so-called "smart control" functions would do.
I can get 5.1 audio over the optical for Netflix and I'm okay with that. Good enough for streaming tv shows. I could just use the Netflix app in my xbox to avoid even having to use the optical cable but the tv app pops up very quickly and I'm up and running on Netflix much faster that way.
ARC does seem like a very poorly thought out feature.